The Corporation (and its cousins)
Just what is a corporation? It can be many things, including a way to limit shareholder liability should the entity fail. It is a way, if the entity was adequately funded at its inception and if corporate formalities were properly followed, that stockholders are able to shield their personal assets. It is also an alias for the people behind the corporate name. Further it has a perpetual existence as it doesn’t have given life expectancy. Similar to an “Intervivos Trust” which exists along-side specified human lives, and other than what is called a “Subchapter S Corporation” or the LLC (“Limited Liability Corporation”), it is a taxpayer just as are individual citizens and most trusts are.
The Different Types of Corporations
The following information describes the different types of entities to help you decide what might be right for your future growth, the matter of perpetuity after you retire, or an idea of when its time has at last come. We are available to discuss both the viability of the idea and the structure of a marketing plan once formed.
The different types of corporations include the domestic profit corporation (both the C and S tax status corporations), the ecclesiastical (church), the professional (PC), the not-for-profit, non-profit, these among others. Most corporations are C class. They are formed to make money for their shareholders who invest in them. They pay taxes and have excellent shelters available to them such as pension plans, profit sharing plans, medical reimbursement plans, etc. -all paid for with pre-tax dollars. A smaller version of this came into existence about sixty years ago, the Subchapter S Corporation, in an effort to give some of the benefits to small “mom and dad” entities, such as the corporate limited liability factor should the business fail …then at least the house is safe, but especially there being no corporate taxation; As with a partnership, the tax liabilities from profit for Subchapter S corporations go directly to the shareholders as do the depreciation of corporate assets as liability offsets. There are limitations and certain criteria that have to be met in the case of S corporations, such as limits to income received from passive investments (royalties, rents, etc.) and the number of shareholders which make up the entity.
In recent years another form of for-profit entity has become popular which is similar to Subchapter S Corporations except that they are not actually corporations and this form of collective ownership is known as the Limited Liability Company (LLC). Just as the S Corp is a hybrid between the non-taxed partnership and the taxed C Corp, the LLC is a hybrid between the S Corp and the partnership without being a corporation at all, but with S type limited liability. The differences are subtle, but the LLC is often preferred in cases where the entity may own holdings in real estate.
Professional Corporations(PC) and Professional Limited Liability Companies (PLLC) deal with the same subject matter, to wit: all the stockholders (PC) or members (PLLC) have to be of the same class, such as licensed attorneys, doctors, dentists, etc. Professional misconduct, such as malpractice, is not insulated from liability, just matters of business failure. Professional liability insurance still must be maintained for this type of protection but this may be sheltered to some degree by a pre-tax dollar structure within the entity.
Not-for-Profit and Non-Profit Corporations, such as educational institutions, research foundations, charities, etc., are self evident, as are Ecclesiastical Corporations, which relate to the operation of religious enterprises.
Sole Proprietorships, Partnerships and Limited Partnerships
The sole proprietorship certainly predate all other entities. They were the family run barber shops, the shoemakers, and the inns of antiquity. There came a time when other people bought part interests in them and then partnerships and co-partnership agreements came into existence. Again, back to the power of contract law (N. B.: contract law, arguably, is the second most powerful body of law behind property law). Just as the King granted a charter to the first corporations, and the respective Secretaries of State now grant Articles of Incorporations in the different states, the sole proprietor and the partnership (or co-partnership) receive a “Doing Business As” (DBA) Certificate from the county clerk where the business is conducted. Sometimes, and confusingly, this DBA is referred to as an “Assumed Name,” and the converse is true too. An “Assumed Name” is a legal alias that corporations have to name perhaps different divisions or different asset entities that are within the corporation, such as “The Green Thumb”, a greenhouse business, being owned as one asset of (or division of) say… “ABC Industries, Inc.” These names have to be registered with the State and certificates granted. The DBA is likewise an alias but on a sole proprietor or partnership level. Sole proprietorships and partnerships at the county level have their name protected and can sue under the business name in that county’s court system, but have no limited liability protection for the partners who inherently risk everything. Hence, they must maintain adequate insurance in lieu of losing personal assets to the individuals. If this type of entity’s business extends into more than that one county, DBA certificates must be taken out in each county. Unlike corporations, limited partnerships (described below), and limited liability companies which pay a one time filing fee for existence, sole proprietorships and partnerships (co-partnerships included), have a time factor of usually five to ten years before renewal is due to maintain its legal existence and for the protection of the business name and rights to sue under its name.
Forty years ago, the very old concept of the entity known as the “Limited Partnership” was an entity of the county in which such resided. With the coming of the 1970’s investment into separate oil and gas well drilling on leased farmer’s fields throughout Michigan, limited partnerships, like corporations, became a State entity for practical sense, to wit: one entity could act in all counties. The limited partnership concept is unique. There must be at least one general partner who is exposed to unlimited liability, sometimes an individual and sometimes an insulated corporation. This being said, investors then come in for percentages of profit should the venture be successful. These are called limited partners. They must sit back and not be a part of any business or decision making of the limited partnership or they will lose their limited liability status (up to what they invested only). They are like the person who bets at the horse race. They must strictly remain in the stands. The tax ramifications and benefits of tax write-offs as per depreciation on business property of the limited partnership flow directly to the partners, usually by and through the terms of their limited partnership agreement.
Understanding A “Joint Venture”
A joint venture is usually a partnership or limited partnership that ends on a certain date which is stated in advance such as “when the ship comes in” or “when the treasure is found.” Again, it is a matter of contract over that of being a legal entity but usually an entity is formed to give structure to this type of arrangement. It could be done on a State level by way of a Limited Partnership filing but usually it is done, if at all, by a county filing such as in Broward County, Florida …if the treasure ship sought is just off of that coast. Again, the contract rather than the entity is usually the focal point.
Bring Us Your Concept, And We Will Build It For You
The design and possibilities are all based upon your concept. We have established literally hundreds of entities ranging from insurance to Bancorps, stained glass studios to restaurants, etc. We know and think business development, and we do this at a fair and efficient price. If you have an idea, why not call and make an appointment to talk about it. The initial consultation is both confidential and without charge.