In the United States, every corporation out there began small. However, it only makes sense that nearly every startup has to eventually think about what kind of entity they want to be and how they want to organize their company. This leads to an imperative of why we need to understand the different types of corporations.
If you want to make the right decision for your company, you need to understand first and look at the various types of corporations and business structures.
However, what are the types of corporations? There are a lot of types of corporations out there. Some are C corporations and S corporations. These are just a few of the types of corporations out there.
More of them can be read here:
First is the C corporation. It is a legal entity that the government taxes. When the government taxes the C corporation, the corporation itself is the one being taxed. It is not taxed alongside its owner. Some companies structure themselves as C corporations for certain reasons and benefits – one of them being federal tax income purposes and because they will be eligible to receive an unlimited number of foreign and domestic shareholders.
They cover the distribution of earnings and profits as dividends; these are subject to income tax, and as such, the company’s profits, both at the corporate level and on an individual’s tax returns, are taxed. Significantly, there are exceptions to this rule, including both distributions in the corporation’s liquidation and the termination of shareholder’s interest.
S corporations elect to pass their corporate income, losses, credits, and deductions directly to their shareholders. They do it for tax purposes. S corporations prefer to structure themselves in a partnership, which results in them avoiding double taxation of a C corporation. At an S corporation, income is taxed from a shareholder level, not the corporate level. In addition, payments to shareholders are distributed tax-free.
Some corporate penalties, such as the personal holding company or accumulated earnings tax, also don’t apply to S corporations. Like C corporations, this type of entity follows the law of the state where it resides, like a corporation in the Philippines.
Moreover, S corporations have certain requirements that need to be met. The eligibility requirements include:
- Possessing only a single class of stock
- Having 100 or fewer shareholders
Limited Liability Companies
Have you ever seen an LLC in the last part of a corporation’s name? If it is, then this type of corporation may ring a bell! An LLC is short for a limited liability company. Moreover, a limited liability company (LLC) contains and possesses the elements of both a partnership and a corporate structure. Furthermore, the LLC and its structure offer limited liability protection to owners, protecting them from being financially responsible for any damages the company causes.
For an LLC corporate structure, having a board of directors is not important. Its owners usually are the ones who decide to structure the corporation. Most of the time, it is structured as a partnership.
Lastly, we’ve got nonprofit organizations. Nonprofit organizations have goals for a wide variety of causes. To achieve this, they use surplus revenues. Moreover, nonprofit organizations have a board of directors who make the big decisions on behalf of the organizations.
Once you have registered your business, it becomes a legitimate entity, with a number of implications that come with the type of business structure and corporation you choose it to be.
Angelo Castelda works as a contributor for a news magazine in Asia. He loves to learn and understand diverse cultures and aims to share through his writing his experiences around the world.
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