Types of Corporations

There are many benefits to incorporating a business, no matter what kind of business it is or how big it is. Once you’ve decided that the benefits of forming a corporation outweigh the costs, the next step is to figure out what kind of corporation is best for your business.

Most people can choose from four different kinds of businesses:

C Corporation
S Corporation
Nonprofit Corporation
Professional Corporation

Visit our Business Structures Chart to compare top-level characteristics of each type of corporation and how they compare to other business structures.

Pros can make the process much easier by letting you incorporate your business online quickly, cheaply, and with a 100% money-back guarantee. This lets you focus on what you do best: growing your business.

Corporation (C)

The most common type of corporation is the C Corporation. The shareholders own the C Corporation, which is also known as a “general for-profit corporation.” The shareholders choose a board of directors to make and run the business’s high-level policies.

The Board of Directors then chooses corporate officers, who are in charge of running the business day-to-day.

Please note that most of the time, ONE PERSON can fill all roles. As a business formality and good business practise, though, it’s important to keep these roles separate and just “change hats” when needed.

So, shareholders usually have limited liability, even if they help run the business on a day-to-day basis as employees or corporate officers.

Shares of a corporation can be given or sold to anyone, unless the shareholders agree otherwise. The corporation will always be there, unless it is dissolved. It is a separate tax entity, which means it has to file its own tax return and pay taxes on the money it makes. In a C Corporation, there is no limit on how many people can own shares.

S Corporation

The same thing happens to make a S Corporation as to make a C Corporation: the Incorporator files Articles of Incorporation with the state office.

But the S Corporation and the C Corporation are very different in two important ways.

Under subchapter S of the Internal Revenue Code, the S Corporation chooses to be taxed as a “pass-through entity.” This means that a S Corporation’s owners and/or shareholders are NOT taxed separately from the business. Instead, corporate profits and losses are “passed-through” and reported on the personal tax returns of the shareholders, much like a partnership.

Unlike a C Corporation, a S Corporation has rules about who can own it. In a S Corporation, only up to 100 people can be shareholders.

Each owner must be a person or a trust, not another company; AND

Each individual shareholder must be a U.S. citizen or a “Resident Alien,” which includes people with a Green Card and certain other foreigners who pass the Substantial Presence Test. Residents who pass the Substantial Presence Test don’t have to live in the country permanently. Tax laws say that even if they have a Visa (H1/L1), they are still a Resident Alien.

Corporation Without Profit

Under Section 501(c)(3) of the Internal Revenue Code, a special legal entity can be set up for groups that are set up for charitable, educational, religious, literary, or scientific purposes and not to make money for their shareholders. A 501(c)3 nonprofit corporation that is fully and correctly set up has the following traits:

The company doesn’t have to pay taxes.
Dividends can’t be paid by companies that don’t have to pay taxes.
When a company goes out of business, its assets must usually be given to another qualified nonprofit group.
There may be important filing requirements at both the State and Federal levels to get tax-exempt status and keep it.
Some things, like running political campaigns or doing a lot of lobbying, may be against the rules for a nonprofit.

Professional Business

Most states have special filing requirements for businesses that offer professional services. Most of the time, professional services include:

Doctors or Physicians
Lawyers and Law Firms
CPAs (certified public accountants), architects, and other professionals with licenses

Depending on your state, the paperwork you need to file as a business can be more or less extensive.

Laws about businesses and professionals are often very complicated. Before you decide to become a professional corporation, we strongly suggest that you talk to an attorney.

Once you have the legal advice and information you need for your specific situation, CorpNet® can help you and/or your lawyer make the necessary documents and file them with the state office.

We hope this article helped you. You might also be interested in getting our paid services for tax preparation, tax filing, bookkeeping or corporate compliance or related issues. Feel free to contact.

Also, go to 4SYTE Bolg, if you want to read more taxation and business guides and business news. Sign up for our email newsletter if you haven’t done so already,