Corporations; 501 (c) 3 Nonprofit, C & S Corps; Definitions, Advantages & Disadvantages

Incorporations have a lengthy history spanning centuries. Private businesses to municipalities incorporate. As such a major model for business organizations it behooves us to give them some consideration. A company or group of people legally authorized to act as a single entity, just like a person is a corporation. Towns and cities incorporate to conduct business on the behalf and for the local citizens. But in this blog, we are interested in pursuing the options available for our business. There are two considerations for categorizing a corporation; can they issue stock and are they for profit. As far as the law, is concerned a corporation is a legal person. Corporations can engage in contractual obligations, borrow money, own property and engage in business. By their nature corporations are controlled by a board of directors who have a fiduciary obligation to the member referred to as stockholder. The corporation protects and limits the liability of the stockholders from actions taken by and against the corporation.

501 (c) 3 Nonprofit Organization Definition

A 501(c)(3) corporation is a non-profit entity. This doesn’t mean people don’t get paid, but as employees only. But funds raised for the corporation can only be used to carry out their mission, youth sports or a charity organization are a few examples, as well as churches. But these are not the organizational vehicles for the entrepreneur and are designed to fulfill a service and the plus they are not taxed. Part of the not profit status includes tax exemptions. Best to have an attorney help you with this, as you must deal with both local and federal governments, which can be both cumbersome and frustrating at best. Trying to educate yourself about non-profits while submerged in the regulatory quagmire can destroy your enthusiasm for the project.

C Corporation Advantages & Disadvantages

The C-Corp offers a list of advantages including limited liability for directors, officers, employees and shareholders. Corporations can outlive their creators as they are perpetual. With ability to sell stock, growth has nearly unlimited potential. The corporation is started by filling for incorporation at the state level. They must have management and a Board of Directors and the list of officers and directors are filed annually. Taxation is the Achilles Heel of corporations as you are double taxed. The corporation pays a tax, with many states requiring a minimum corporate tax after some years post-creation. Then the shareholders pay taxes on their earned equity. But investment is not limited to persons but institutions as well providing high growth potential. At some point a corporation may want to submit for public trading of shares or stock. Nearly every large major business is a C-Corp. The Chief Executive Officer is the long-term strategist for the corporation while the President is the chief administrator who runs the business. Part of the corporate organization of a corporation is designation of officers, with the president, secretary and treasurer being the minimum. The last two can be combined as a secretary-treasurer. A board of directors sets the limits of authority and generally governs the affairs of the organization and have control over the choice and appointment of the officers.

S Corporation Pros & Cons

S-Corps is a closely held corporation for tax purposes and voluntarily will choose to be taxed under the Subchapter S of the internal revenue code. As such the corporations does not pay a corporate tax, instead profits and losses are passed through the individual shareholders. The S-Corp combines the protection from liability of the shareholders, but passes the taxes through the shareholders like a partnership or LLC. With S-Corps no dividends are received, and they are not limited to a 10% taxable income limitation applicable to charitable contributions. S-Corps are considered ‘small businesses’ and limited to no more than 100 shareholders, no institutional shareholders (exemptions for non-profits, estates and trusts), has no resident aliens as shareholders and has only one class of stock. Spouses and estates are treated as a single shareholders and shareholders are US citizens and must be natural persons, no other entities allowed. All stock of the single class stock of a S-Corp have the same rights to distribution and liquidation, and are proportioned to the shareholder in proportion to his/her stock.

Small Business Formation, License, Contract Attorney & More in Greater Las Vegas, Nevada

As can be seen, incorporation has its advantages and myriad number of choices. Consult with an attorney with experience in business organizations and with a CPA. Be sure to make an informed decision. Contact Kajioka and Associates, Attorneys at Law to schedule a consultation today.

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