Businesses operate in different forms including sole proprietorship, partnership, LLC, and corporation. A corporation is the highest form of business organization that involves the greatest number of owners, capital, credibility and longevity. The corporation is defined as a form of business entity that is recognized under state law as being separate from its owners. This characteristic is distinct for a corporation as other business forms like a partnership and sole proprietorship are not considered separate from their owners.
Tesla Motors is a car manufacturing corporation headed by Elon Musk. Other examples are Apple Inc., HP Inc., Proctor and Gamble, McDonald’s, etc.
Types of Corporation
There are two main types of a corporation; C-Corporation and S-corporation, which are explained below. Other types of a corporation include B-corporation, no-profit corporations, and closed corporation.
When talking about a corporation, most people assume it to be a C corporation making it the most common type of corporation. It has the following features:
- A C-Corp has no limit on the number of shareholders.
- As a positive feature, each shareholder is entitled to limited liability depending on the percentage of investment made in the corp.
- On the con side, C-corporation’s income is subjected to double taxation. One time, the net income as a corporate entity is taxed, and the second time, the owners’ individual income (dividends) is taxed.
The following features are special to S-corp:
- It can have a limited number of 1-100 shareholders and one kind of stock.
- Similar to C-corp, the shareholders of S-corp also have limited liability.
- As a distinguishable positive feature, S-corp is not subjected to double taxation. This is so because the corporation’s income, losses, or liabilities are transferred to the owners and not charged to the separate corporate body.
The corp is a separate legal entity with legal existence. Generally, there are two types of corporations that include S-corporation and C-corporation.
S-corporation has a maximum limit of 100 shareholders. However, the good thing is that there is no double taxation on the income. On the other hand, C-corporation is truly a corp with an unlimited capacity of shareholders. However, incomes are taxed twice; these include corp tax on the profit and personal tax when these incomes are distributed to the shareholders.