Home Types of Corporations

Types of Corporations

Overview of the Different Types of Corporations

Overview of the Different Types of Corporations

Types of corporations


Each type of corporation has liability as an
entity. However, many times the individuals employed by a company are not held
liable for the actions of that entity. Yet, employees of a corporation can be
held liable in cases where they acted alone or without permission from the
corporation.  

 

S corporation

 

S corporations enjoy limited liability, just
as many other types of corporations do. The factor which sets apart an S
corporation is the singular taxation on the profits of the company. The
dividends are distributed to shareholders and employees before the profits are
taxed. Each individual is then responsible to declare those dividends as income
and pay taxes as an individual.

 

C corporation

 

C corporations are those corporate entities
which receive double taxation on the profits of the company. The profit is
taxed at the corporate level and again when it is distributed to shareholders.
C corporations can become S corporations in order to receive singular taxation,
but it is dependent on the number of shareholders.

 

Multinational corporation

 

Multinational corporations are those
corporations which conduct business in more than one country. In most cases, a
multinational corporation will have their headquarters in one country with
offices being found in many other countries.

 

Corporate law

 

Corporate laws include those laws which
govern the actions and legality of those actions, of corporations as an entity.
In most cases, individuals cannot be held liable for actions of the corporate
entity, unless they acted as individuals rather than employees of that company.

 

Umbrella corporation

 

Umbrella corporations are those corporations
which offer legal and financial protection, as well as service
s too many smaller corporations. For example, umbrella corporations may distribute products from several manufacturing
corporations and then become responsible for any recalls of those products.

The Liability of Different Corporations

The Liability of Different Corporations

There are many types of corporations, but each type adheres to the corporation definition.
Each type of corporation may have differing laws which govern that corporation,
as well as different types of liability. Corporate structure plays a large part
in the corporation definition, which includes the name of the corporation as a
separate legal business which has a separate liability than that of those which
are employed by the corporation.

 

Corporations have liability for issues which
involve the actions of the corporation as a whole. The corporate structure
includes employees, each of which answers to a boss except perhaps for the
president of that company. However, the president of the company may have to
answer to stock holders.
The liability of the corporate entity rests
with the company as a whole, but there are issues
for
which individual employees can be liable.

 

In most cases, a corporation has limited
liability and can only be held accountable in certain circumstances or up to a
certain amount. For example, if corporations should go bankrupt, the employees
of that company and even the owner would not be liable to all creditors in most
cases.

 

As an entity, the corporate structure
includes rights and responsibilities which protect the company, the employees
and those that conduct business with the corporation. Corporations are created
and they can also be dissolved through a process which ends the incorporation
of the individuals or entities which created the company.

 

 

Look Into S Corporation

Look Into S Corporation

The major factor which separates an S corporation from other types of corporations is the manner in which the corporation is taxed by the Federal Government. The income of S corporations is divvied among the shareholders according to their actual number or percentage of shares in the company and then that shareholder must report the income on their individual tax returns. S corporation advantages include the lack of taxation on the profits of that company.
In contrast with a C corporation, which includes double taxation at the point of the company and the shareholder, S corporation advantages include singular taxation at the point of each individual shareholder. S corporation shareholders also enjoy limited liability for the actions of the corporation because S corporations are individual entities, separate from the individual shareholders.
If, for example, there were three shareholders of an S corporation, each would receive dividends according to their percentage of ownership of shares in that corporation. That money would be distributed pre-tax to each employee and/or shareholder. Each of those individuals who make up that S corporation would then be responsible for the taxes on their dividends.
While S corporations are taxed, it only occurs one time, whereas many corporations receive double taxation: once on their profits and then again when the money is distributed. However, S corporations also enjoy the limited liability offered to many other corporations as an added benefit.
What is an S-Corporation?
An S-corporation is a business entity that, according to the United States Federal income tax law, is specially taxed by the Internal Revenue Service. An S-corporation, through this special taxation, is not forced to pay any Federal income taxes to the United States Government. That being said, an S-corporation’s income, debts, or losses are divided and passed onto its shareholders.
Through this division, the shareholders then must report the income or capital losses on their individual income tax returns. This concept, known as single taxation, enables an S-corporation to achieve a unique taxation model which will limit liability through the presence of diversified liability. In other words, the investors in the company face taxation liability concerning the company’s gains or losses.
When a company obtains S-corporation status, they are permitted to utilize a partnership taxation model. This taxation structure offers protection from creditors and spreads liability to individual investors.
All rules and regulations concerning an S-corporation are outlined in Subchapter S of Chapter 1 of the Internal Revenue Code. An S-corporation combines the legal implication of a C-corporation with the United States Federal income taxation model applied to that of partnerships.
Similar to a C-corporation, an S-corporation is considered to exist as a traditional corporation under the law of the particular state in which it is organized. That being said, S-corporations are separate legal entities from their shareholders and, through these specific state laws, will generally provide their shareholders with the same liability protective measures awarded to shareholders of C-corporations.
In regards to the Federal income tax levy, an S-corporation resembles a partnership. Similar to a partnership, all income accrued, all deductions realized, and all tax credits associated with the S-corporation will flow through (annually) to the shareholders of the entity. As a result of this characteristic, income earned by an S-corporation is taxed at the shareholder level and not at the corporate level.
 
How to Receive S-Corporation Status
To receive S-corporation status, the entity must be eligible and regarded as a domestic corporation, a limited liability company. This means the company must be elected to be taxed as a corporation. The underlying entity must possess only one class of stock. The entity must possess at least 100 shareholders—all spouses or families are typically regarded as a single shareholder. The shareholders must be legally recognized as citizens of the United States.
Additionally, the shareholders must be natural persons. This will exclude corporate shareholders and partnerships for shareholder consideration. All profits and losses incurred by the entity must be allocated to shareholders in proportion to each individual’s interest in the business’ operations.
If the underlying entity meets the aforementioned qualifications, it must file Form 2553, titled “Election by a Small Business Corporation” with the Internal Revenue Service. The form must be completed and signed by all of the entity’s shareholders and the election to finalize the corporation must be made by the 15th day of the third month of the taxable year in which the election was held.

 

C Corporation

C Corporation

C Corporations include double taxation on the profits of that company. The C Corporation is an individual entity from the employees and the shareholders of that corporation. Taxation occurs on the profit of the C corporations and then the profits are distributed. Each individual which makes up the entity of that corporation is then taxed on their income received from the corporation.
A C corporation can be formed regardless of the number of shareholders or partners and can eventually become an S corporation, which is dependent on the number of shareholders. In order to first become a C corporation, the corporation must first form the entity and then appoint leadership in the corporation.
Once that has occurred, the paperwork is filed to incorporate those individuals in order to form a corporation entity. Next, the employees and shareholders of that corporation must have laws and rules which govern the corporate entity and those that are employed by that corporation and they must hold a leadership meeting. After that meeting has taken place, the corporate entity must distribute official stockholder certificates to those who have ownership in the corporate entity regardless of their percentage of ownership.
C corporations must also obtain the proper permits and licenses required for them to conduct business wherever the corporate entity is headquartered, as well as locations where the C Corporation will have offices.
What is a C Corporation?
A C Corporation refers to any business entity that, according to the United States Income Tax Law, is taxed separately from its owners. The bulk of large companies (and a number of smaller companies) are treated as C Corporations because of their tax advantages.
A business entity can be formed in a variety of ways, ranging from a general partnership to a sole-proprietorship or an LLC to a corporation. A C Corporation (referred to as a corporation) is remarkably different from other business formations because it is regarded as independent legal entity that is distinct from individuals who own, manage and control the business. Because of it is recognized as a separate entity, a C Corporation is viewed as a legal “person” with regards to tax laws. This status enables the C Corporation to be engaged in contracts and business. Moreover, as a separate legal entity, a C Corporation can be taxed, as well as initiate a lawsuit or be sued itself.
A C Corporation is a business term that is used to separate itself from other business formations—the distinct classification is necessary because the C Corporation’s profits are taxed separately from its owners under subchapter C of the IRS.
C Corporations are owned by shareholders, who are responsible for electing a board of directors. The board of directors is a group of executives who makes business decisions and oversees policies for the entire C Corporation. In most formations, a C Corporation will be required to report it financial operations to its state’s attorney general. Because a C Corporation is treated as a distinct entity, the formation will still exist when its shareholders or owners change or die.
Another primary advantage of C Corporations is that its owners possess limited liability. Because of this characteristic, a C Corporation will not face personally liable for debts incurred by the entity—a C Corporation will not be sued individually for wrongdoings.
Primary Benefits of a C Corporation:
Unlike a Limited Liability Corporation or a sole proprietor, a C Corporation is less likely to be audited by the United States government.
Owners and shareholders of the C Corporation have limited liability with regards to the formation’s debts.
C Corporations are allowed to deduct the cost of benefit as business expenses. For example, a C Corporation can write off the entire cost of a health plan that is established for its employees as a business expense. All benefits and costs associated with a C Corporation are tax-free.
C Corporations can be formulated to split the corporate profit amongst the corporation itself and the owners of the entity. This split will result in overall tax savings. The tax rate for C Corporations is typically less than that for an individual, particularly for the first $50,000 of taxable income.
Under a C Corporation formation, the entity can possess an unlimited number of stockholders. This enables the C Corporation to sell shares to a larger number of investors, which in turn, enables the C Corporation to secure more avenues to fund their projects. Additional monies can be raised by C Corporations by selling stocks if the entity is in need of expansion.
Foreign governments have the right own or invest in C Corporations. There is no binding regarding the type of investors as there are in the case of an S Corporation.
The majority owner of a C Corporation may issue different “classes” of stocks; C Corporations issue primary and secondary issues of stock.

Tax Benefits of a C Corporation:

C Corporations are awarded a number of C Corporations; the exposure to these tax benefits will depend on the entity’s business income.
C Corporations are the only business formation that is not a pass-through activity; a C Corporation’s net income is not taxed at the corporate rate before it is distributed to the shareholders or owners, who must then also pay tax on the income.
A small-business owner who creates a C-Corporation will have to file one of two forms with the Internal Revenue Service. The first form is for personal taxes, including all income generated from the business and another for their role in the business. The business income will be filed on Form 1120 (United States Corporation Income Tax Return) or Form 1120-a (United States Corporation Short-Form Income Tax Return).
If the entity reports an income under $50,000 the C Corporation will be taxed at 15 percent. At the same time, the individual owner or shareholder claims that income through an S Corporation an LLC or a sole proprietorship would require the individual to fulfill higher tax rates on their 1040 tax forms—the rate would be $4,386 plus 25 percent of the amount beyond $31,850.
If the business is profitable, the C Corporation will be entitled to a number of deductions that may make it possible for the company to have $50,000 or less in business income following deductions. For example, the owner’s salary (and the salaries of their employees) of a C Corporation is tax-deductible for the business. A C Corporation will also enjoy other tax breaks, including:
Compensation of directors and officers
Tax deductions associated with rent, repairs, maintenance, depreciation and charity donations
The C-Corporation is permitted to engage in profit-sharing and employee benefit plans, including pensions and insurance.
A C Corporation, because of the presence of shareholders, can issue stock or options to its employees.

C Corporations and Their Tax Rates:

For a general purpose, a system of graduated marginal tax rates is applied to the C Corporation’s taxable income, including all capital gains. The marginal tax rates on a corporation’s income are as follows:
For corporations with a taxable income between 0 to 50,000 the tax rate is 15%
For corporations with a taxable income between 50,000 to 75,000 the tax rate is $7,500+25% of the amount over 50,000
For corporations with a taxable income between 75,000 to 100,000 the tax rate is $13,750 + 34% of the amount over 75,000
For corporations with a taxable income between 100,000 to 335,000 the tax rate is $22,250 +39% of the amount 100,000
For corporations with a taxable income between 335,000 to 10,000,000 the tax rate is $113,900 + 34% of the amount over 335,000
For corporations with a taxable income between 10,000,000 to 15,000,000 the tax rate is $3,400,000 + 35% of the amount over 10,000,000
For corporations with a taxable income between 15,000,000 to 18,333,333 the tax rate is $5,150,000 + 38% of the amount over 15,000,000
For corporations with a taxable income over 18,333,333 the tax rate is 35%
Disadvantages Associated with a C Corporation:

C Corporations are extremely complicated with regards to tax laws. For instance, if the owner or board of directors of a C Corporations wants to issue dividends to shareholders, the entity will not only pay taxes on the profits Moreover, when compared to a sole proprietorship or a limited liability company, a C Corporation is typically more difficult to establish.
How is a C Corporation Formed?
A C Corporation, in the United States, is formed according to the laws of individual states or Washington, D.C. The procedures and requirements that govern the formation of a C Corporation will vary widely by state. For instance, some states will allow for the formation of corporations through electronic filings on their government’s web site or through a lengthier paper process. That being said, all individual states will require a fee for incorporations.
C Corporations are formally issued “certificates of incorporations” by the majority of states upon formation. The bulk of state corporate laws will require that the basic governing mechanism be either the formal articles of incorporation or the certificate of incorporation. Several C Corporations will also adopt additional governing regulations, referred to as bylaws. The majority of state laws in the U.S. will require at least on official or director (and at least two officers) to be a part of the C Corporation’s board of directors or governing body. Typically, there are no residency requirements for the officers or directors of a C Corporation.
C Corporations are not required to issue financial statements in the United States. These financial statements may be presented on any basis with regards to the comprehensiveness of the document.
The bulk of state laws will permit distribution of any financial or property amount to the corporation’s shareholders so long as the transfer does not render the corporation insolvent. Any transfer of earnings and profits of the C Corporation is viewed as a dividend for U.S. tax purposes. This system essentially treats profits and earnings similar to retained earnings.
C Corporations vs. S Corporations:

A C Corporation is distinguished from an S Corporation (which is also taxed separately) because it is not taxed separately. When a business is incorporated, shareholders may elect to treat the corporation as a flow-through organization (S Corporation). These types of corporations are not subject to income tax; however, the individual shareholders of the S Corporation are subject to tax on the income generated from their shares. Dissimilar to S Corporation, a C corporation does not have any restrictions regarding the number of shareholders.
Although S corporations are entities for the purpose of local law, not all states will recognize an S corporation for income tax purposes. For instance, an S corporation is recognized in the state of Massachusetts but not New Hampshire. By default, an incorporated entity will be viewed as a C corporation; if the owner or shareholders wish to be taxed as an “S” corporate, they must file form 2553 to inform the Internal Revenue Service that the owners elect this tax treatment.
The primary distinction between a C Corporation and an S Corporation is that the S Corporation passes its taxable income or losses directly to their shareholders, while C Corporations pay taxes on the corporation’s income directly. To elaborate, view the following example:
If an S and C Corporation make $100,000 annually through sales and have general expenses of $50,000, less $35,000 in general salaries, both the S and C Corporation will possess a taxable income of $15,000. Now, in this example, the S Corporation’s $15,000 will be passed through to its shareholders—these individuals will be taxed directly under their 1040 Federal tax forms. For example, if the corporation is owned 25% by 4 shareholders, each individual will reports $3,750 as income on schedule E. This income is passed through to the shareholders when the corporation files an 1120S income tax return. This tax form will include a K-1 form that will inform the owners of their pro rata share of taxable income. The shareholder will then receive this income or a distribution in cash.
In regards to ownership, a C Corporation has no restrictions, while an S Corporation does. S corporations are restricted to no more than 100 shareholders—these individuals must be US residents or citizens. Moreover, an S Corporation cannot be owned by a C Corporation, a Limited Liability Corporation, and the majority of trusts, partnerships or other S Corporations. Also, an S corporation may have only one class of stocks, whereas C corporations can offer multiple forms of shares. C corporations therefore offer more flexibility when establishing businesses if you wish to grow, expand or sell the corporation.

A Quick Explanation on Corporate Laws

A Quick Explanation on Corporate Laws

Corporate law includes those laws which
govern corporations as an entity, as well as the laws which apply to the
individuals which comp
rise that entity. That may include
shareholders, those in leadership roles and creditors of that corporation.

 

Some types of corporations have limited
liability and others have unlimited legal liability for the actions or in
actions of the corporation as an entity. The laws which apply to corporations
vary according to the type of corporation, as well as the type of business
conducted by that corporation.

 

The law treats a corporation as an
individual, separate from those which work for or control that corporation.
That means that in most cases individuals are not held liable for the
corporation. Take for example a corporation which declares bankruptcy. Corporate
law would dictate the responsibility of that company to creditors, as well as
to shareholders. In most cases, no single individual would be responsible for
the corporation as an entity, but the responsibility would instead fall on the
corporation
itself. However, shareholders
may lose their shares in order to pay off the creditors.

 

Corporate law often include a law firm with a myriad of lawyers that
work there. That law firm may be
a corporation as well being governed by the partners in that
firm. Depending on th
e type of corporation formed by those
individuals, the individual lawyers may or may not be legally liable for their
actions in the courtroom and outside of the courtroom.

Umbrella Corporation Explained

Umbrella Corporation Explained

Umbrella corporations are those corporations
which cover many smaller corporations. For example, an umbrella corporation may
provide services, such as legal services, for the smaller companies which are
protected by the umbrella corporation.

 

In most cases, an umbrella corporation is
utilized as part of a large structure of corporations in order to provide
services, protection and financing to smaller companies found under the
umbrella of that large corporation.

 

In some cases, a corporate umbrella is used
to cover the larger part of the corporate structure which has several brands
below it. For example, the corporate umbrella may
be
named as the distributor of many different brand name
products.

 

For example, X Corporation may be a
distributor for the products of both Y and Z products. That distributor
protects the smaller corporations, as well as handles much of the financial
issues for those smaller corporations. By taking on the liability and other
issues, the distributor also takes a large percentage of the profits from the
distribution of those products.

 

There are many benefits associated with an
umbrella corporation, including legal liability issues such as those which may
occur with a recall of a product distributed by that corporation. In addition,
the companies which fall under that umbrella may also enjoy discounted services
because of the bulk of business
is conducted
by the umbrella corporation, such as insurance and payroll services.