What Types of Corporations Are There?

If you’re like many people, you may be confused about how businesses incorporate in the United States. The laws surrounding incorporation vary from state to state, and the type of corporation that is best for you may vary depending on your situation. Corporations are one of the most commonly registered types of business. Whether you’re starting your own business or a shareholder who wants to learn more about the process, read on to find out what types of corporations exist.

There are many different types of corporations. Depending on the nature of the business, a company may choose one type of corporate form over others. There are often legal and tax benefits to choosing one type of incorporation over another. The different types of corporations exist in order to address various needs of businesses and to make it easier for them to accomplish specific business goals.

Some different types of corporations include:

• Close Corporation: This is where the majority of the company’s stock is held by only a few shareholders. Often utilized by family businesses.
• Foreign Corporation: This is a corporation that is registered in one state, but operates in one or more different states. Many businesses do this in order to take advantage of more favorable filing options that exist in certain states such as Delaware and Nevada.
• Non-Profit: Non-profit corporations engage mostly in charitable projects and activities.
• Controlled Corporation: A controlled corporation is where most of the stock is owned only by one firm or one individual.
• Private and Public Corporations: Private corporations are businesses formed for non-public intentions, such as religious organizations or various industry-centered corporations (like banking corporations). Public corporations are owned by the government.
• Professional Corporations: These are corporations consisting of licensed professionals from a given field who band together in order to pool their resources and talents.
• S Corporations: In an S corporation, the stockholders pay taxes directly. This can result in different tax results. This is in contrast to the more standard C Corporation, in which the corporation handles its own tax matters.

There are many other types of corporations; these are just a few of the main types of corporate forms that are commonly chosen.

Why Should a Business Incorporate?

There are several advantages to incorporation, including:

• The company becomes its own, valid, legal entity and can operate as such (signing documents, filing papers, etc.).
• Shareholders are generally insulated from liability; the corporation is typically held liable for violations or losses.
• Some corporate structures such as non-profit corporations are granted various tax benefits
• Public consumers often associate incorporated businesses with trustworthiness and reliability.

On the other hand, there can be a few setbacks and disadvantages regarding the corporation process. One of these is that the process can often be complicated and lengthy. Some smaller businesses may wish to choose a simpler business structure like a partnership or a sole proprietorship.

How Do Businesses Incorporate?

New corporations are formed by incorporating. The corporation could be a business, a nonprofit organization, a sports club, or a new city government. Even though corporations are not people, they are recognized by law as having the same rights and responsibilities as natural persons.

The articles of incorporation are filed with the appropriate state office. Articles of incorporation list the purpose of the corporation, its principal place of business, and the number and types of stock shares it will have. Typically, a registration fee between $25 and $1,000 is due to the state.

Corporations have distinct names, and they are generally made up of three parts:

• A distinctive element
• A descriptive element
• A legal ending

All corporations must have a distinctive element and a legal ending to their names in most jurisdictions. Some corporations choose not to have descriptive elements. For example, in the name “Tiger Electronics, Inc.” the word “Tiger” is the distinctive element. The word “Electronics” is the descriptive element, and the “inc.” is the legal ending.

The legal ending indicates that the corporation is legal and not just a business registration or a partnership. Incorporated, limited, and corporation are commonly abbreviated as Inc., Ltd., and Corp., and they are the possible legal endings in the United States.

What are the Legal Benefits of Incorporating?

There are several legal benefits to incorporating. They include:

• Protection of personal assets: Perhaps the most important legal benefit of incorporating is protecting personal assets against claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all business liabilities, such as loans, accounts payable, and legal judgments. With corporations, however, stockholders, directors, and officers are generally not liable for the company’s debts or obligations. They are limited in liability to the amount they have invested in the corporation.
  • For example, if a shareholder bought $100 worth of stock in a corporation, they cannot be liable for more than $100. Corporations and limited liability companies (LLCs) may hold assets like real estate, cars, or boats. If a shareholder is personally involved in a lawsuit or bankruptcy, their assets may be protected. Creditors of shareholders in a corporation or LLC cannot seize the company’s assets. However, creditors can seize ownership of shares in the corporation, even though they are considered personal assets.
• Transferable ownership: Ownership of a corporation or LLC is easily transferable to another person, whether in whole or in part. Some state laws are very corporate-friendly. For example, transferring ownership in a corporation in Delaware is not required to be filed or recorded.
• Retirement funds: Retirement funds and qualified retirement plans, such as 401(k)s may be established more easily via corporations.
• Taxation: In the United States, corporations are taxed at a lower rate than individuals are. Corporations can own shares in other corporations and receive corporate dividends 80% tax-free. There are no limits on the number of losses a corporation can have and carry forward to subsequent tax years.
  • On the other hand, sole proprietorships cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.
• Raising funds through stock sales: Corporations can easily raise capital from investors by selling their stock.
• Durability: Corporations are capable of existing indefinitely. The existence of a corporation is not affected by the death of shareholders, directors, or even directors of the corporation.
• Credit rating: Regardless of an owner, shareholder,

Do I Need a Lawyer for Help with Corporation Legal Issues?

Filing for incorporation can sometimes be a complicated process. You want to make sure that you’re choosing the right type of corporation for your company’s goals. It’s in your best interests to hire a qualified corporate attorney if you need assistance with any filing or incorporation matters. Your lawyer can help you review all the different available options. Also, in the event of a dispute or a legal conflict, your attorney can help you file a lawsuit if needed.

LegalMatch has a large and comprehensive database of experienced business law attorneys. By using the link here, you can narrow down your search for an attorney in your area by selecting the particular issues involved in your case. LegalMatch’s services are always 100% confidential, and there is no fee for a consultation.