Types of Corporations

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 What is a Corporation?

A corporation is a business entity considered by law to act as a single entity, separate from the shareholders who own it. One key difference is that a corporation is taxed on its income; this is different from partnerships, where the company’s income passes through to the partners, and they are the ones who pay taxes on the company’s profits.

Moreover, unlike a partnership, where owners are liable for all company debts, with a corporation, only the company itself can be held liable for corporate obligations.

There are many different types of corporations. In general, they are classified depending on certain specific factors, including:

  • The corporation’s business purpose
  • The number of shareholders in the corporation
  • The amount of stock to be issued by the corporation
  • How the income of the corporation is taxed
  • Whether or not the corporation is incorporated to make a profit

Typically, when people use the word “corporation,” they refer to one of the two main types of corporations. These are C Corporations and S Corporations. A C Corporation is a corporation that is taxed separately from its owners. An S Corporation, however, is not.

There are some benefits to forming a corporation. These include:

  • The corporation can survive changes in ownership, while a partnership has to be completely redesigned if one partner leaves
  • The corporation can exist perpetually beyond the lives of the initial investors
  • A corporation is considered a person and, therefore, is entitled to certain constitutional protections
  • There is limited liability because only the corporation itself is held responsible for its obligations

If I Plan to Form a Corporation, What Types Are Available?

There is a wide variety of types of corporations that are available. The most common types include:

  • A business corporation is formed to engage in commercial activity for a profit. It is also known as a for-profit corporation;
  • A C Corporation is a corporation whose income is taxed by the corporation rather than through its shareholders. If a corporation does not choose S Corporation tax status, according to the Internal Revenue Code, it is a C Corporation by default;
  • A close corporation is a corporation whose stock is freely traded and is held by just a few shareholders. The shareholders are often within the same family. The privileges and requirements of closed corporations vary by state.
  • A controlled corporation which is a corporation in which the majority of stock is held by one individual or firm
  • A cooperative corporation is primarily organized to provide services and profits to its investors, unlike a corporation organized for corporate profit. One common use for a cooperative corporation is to purchase real estate (for example, an apartment building) so that the shareholders may lease the apartments to others
  • A foreign corporation is a corporation that is registered in one state but also authorized to do business in one or more other states. This type of corporation is usually created to take advantage of tax breaks or state incorporation laws. It can also refer to an overseas corporation doing business in the United States
  • A non-profit corporation is a corporation organized for a purpose other than making a profit. A non-profit corporation is typically granted advantageous tax treatment
  • A private corporation is a corporation that is founded by and composed of private individuals. It is formed principally for a nonpublic purpose, which may include manufacturing or banking corporations. It may also include charitable or religious corporations
  • A professional corporation is a corporation that provides a service of a type that requires a professional license. These are corporations made up of professionals such as:
    • architects,
    • accountants,
    • lawyers,
    • physicians,
    • veterinarians,
    • various other professions
  • A public corporation is a corporation whose shares are traded to and among the general public. These corporations are government-owned. They engage in activities that benefit the general public while usually remaining financially independent. A publicly appointed board manages these corporations.
  • An S Corporation is a corporation whose income is considered to pass through to its shareholders. According to the Internal Revenue Code, only a corporation with few shareholders can elect S-corporation tax status.

How is a Corporation Formed?

A corporation is usually formed by complying with state corporate laws. Most states structure their corporation laws on a model act known as the Revised Model Business Corporation Act (RMBCA).

Corporations are formed when the articles of incorporation are filed with the Secretary of State in the state where the corporation is being created. These articles must contain several factors, discussed below. Each state has its own corporate law requirements. Therefore, there may be additional requirements beyond those mentioned here. It is important to seek the assistance of an attorney when forming a corporation to ensure that all requirements are satisfied.

What is a Charter?

A charter is a corporate document evidencing that the government authorized the creation of a business or corporate franchise. A corporate charter is filed by a member with the Secretary of State when the business is incorporated. In most cases, the corporate charter includes the articles of incorporation.

The articles of incorporation are a document that establishes the corporation as a business entity. This document becomes a public record. It provides basic information about the corporation, which includes:

  • The corporation’s name
  • The corporation’s contact information
  • Information about the corporation’s stock shares

Every state has its own articles of incorporation form. It is easy to find – it is generally found on the state website for the state office that handles business filings. The information included in the articles of incorporation usually includes:

  • The name and principal address of the corporation
  • The corporation’s purpose (in many states, this can be a general statement, such as “the corporation is formed for the purpose of generating sales”)
  • The corporation’s intended duration. Corporations can be intended to exist forever or only for a limited period.
  • The name and address of the corporation’s registered agent and the registered office.
    • A registered agent is an individual who agrees to accept service of lawsuits and other documents on behalf of the corporation.
    • In some states, the agent must sign a document acknowledging and agreeing to act as the registered agent. In other states, a listing of the names and addresses of the members of the corporation’s board of directors is required.
  • Information regarding the number and types of shares of stock the corporation is authorized to issue. The state may use this number and the description of the types of shares in calculating taxes or fees.
  • The names and addresses of any incorporators or the individuals who signed the articles of incorporation and ensured that they were filed. This can be any individual, or there may be more than one incorporator.
  • The signatures of the incorporators

What Happens if a Corporation Loses its Charter?

If a corporation’s charter has expired or has been relinquished, revoked, or voluntarily terminated, it is known as a dead or dissolved corporation. By law, a dead or dissolved corporation cannot legally operate as a corporation.

Do I Need an Attorney for Help with Corporation Issues?

Yes, it is essential to have the assistance of an experienced corporate attorney with any corporation issues you may have.

It is even an excellent idea to meet with an attorney before beginning the incorporation process. Since there are so many types of corporations available, an attorney can help you decide which type of corporation would be best for your company. Your attorney can also assist you with the incorporation process, including filing any necessary paperwork. An attorney will also help if any issues arise during or after the incorporation process.

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