Types of Business Corporations

The first aim of a company is to maximizes profits for its stakeholders or owners while keeping ethical business practice in the process. Such economic value added means that there is often a high primary challenge for an organization to effectively balance the interests of various other external parties affected by the business. These may include employees, suppliers, investors, government officials and regulatory agencies. Thus, for any firm to remain competitive and survive long term in the marketplace, it has to find ways to address and minimize some of these conflicts.

This balance is most often achieved through a limited liability company (LLC). A Limited liability company, also known as a “pass-through” entity, allows owners to shield themselves from personal and other obligations to their business operations. The company may be operated by an individual shareholder, by a board of directors, or by a general manager. In addition to avoiding personal liability for debts of the business, owners also limit their exposure to lawsuits on the part of the business. By contrast, a corporation protects its owners from liability by issuing shares of stock and requiring general meetings of the Board of Directors.

In corporate law, the formation of an LLC is usually through a registered act. The main difference between a corporation and an LLC is that there is no requirement that shareholders must vote to make a corporation a public company. However, both types of organization are required to file reports with the state on annual financial reporting. Additionally, both types of organizations may be registered as public corporations at the U.S. Secretary of State, while the limited liability company must file a separate state filing.

Unlike a corporation, a company limited by equity does not have rights to issue equity. A share capital requirement, therefore, becomes an important issue in the early stages of the company’s development. Share capital can be converted into cash in the case of a bankruptcy; however, there are cases where owners opt not to convert their shares to cash, which further limits their liability to creditors.

Similar to the differences between corporations and limited partnerships, there are differences between C corporations and S corporations. For the most part, a C corporation is an international business organization that may have manufacturing facilities in multiple countries. A C corporation also elects to report to a United States shareholder, and has fixed accounting and reporting standards. The biggest difference between a C corporation and an S corporation is that, under United States law, an S corporation need only meet state requirements for filing an annual return and is not required to seek state tax approval for any of its business transactions.

For-profit corporations are corporations that have separate legal bodies. These companies may not be public but operate to generate a profit. A for-profit corporation is generally chartered for specific purposes, such as education, religious purposes, or community development. In order to qualify as a for-profit corporation, there must be a valid reason as to why the company will earn a profit. To gain a permit to operate as a for-profit entity, the business must demonstrate a history of paying all federal income taxes as well as meet other state and local requirements.

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