What are the Different Types of Corporation Structure?
Corporation structure can be organized in a number of ways. Companies may be classified as profit or non-profit. There are domestic corporations and foreign corporations. If a company operates in more than one country, it is called a multinational company.
The most common corporation structure is the general corporation. This is referred to as the C corporation. The advantages of this type of corporation structure includes limited liability, ease of transfer of ownership, and capability of raising capital. In the US, there are also certain tax advantages offered to general corporations.
Disadvantages of a general corporation include double taxation and expense and complexity of forming the company. In addition, there is more of a separation between the ownership of the company and the decisions made by the company in running its affairs. A sole proprietor can make a decision and put it into action shortly thereafter. Major decisions in a corporation must be reviewed and voted on by the board of directors.
Another corporate structure is the S corporation, which is similar to the C corporation in that there is limited liability for the stockholders. That is, they can only lose the amount they invested, not their personal assets. The S corporation, however, has the added advantage of avoiding double taxation, as the profit is taxed only at the individual and not the corporate level.
Corporations can be classified as a private or close corporation, or they may be public corporations. Private corporations are held by fewer stockholders and have stock that is not traded publicly. Public corporations are listed on stock exchanges and are under additional scrutiny and regulation.
Both the US and England allow a corporation structure known as a limited liability company (LLC). This business structure can be classified as a corporation, a partnership, or even a sole proprietorship depending on the number of shareholders, or members. Limited liability companies blend the advantages from several of the above mentioned classifications.
One advantage of the LLC is protection of personal assets from business debt liability. Another is that profit and loss are passed through to the individual members of the LLC and not taxed at the corporate level. LLCs also do not have the ownership restrictions of the S corporation structure.
Disadvantages of the LLC depend upon under what jurisdiction it was formed. In the US, some states have regulations about the number of members and the length the business can hold a charter. Although LLCs may be taxed as corporations if the owners elect to do so, the company does not have stock, members do not have the benefits of stock ownership, and the company cannot sell stock to raise capital.
Every company is different, and the best business strategy depends on the specific needs and makeup of the company. The corporation structure is generally chosen with care. Using a structure that is not compatible with the goals of the owner or owners can have a negative impact on the amount of profit made or kept.
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