Corporation Types: LLC, S Corp, Profit, Non-Profit
Here are the major types of corporations you can choose from to incorporate your new business as. for your new business on our websites. We
Corporation Type: Profit
Profit corporations have traditionally been the most common corporate structure. The name is a little misleading, because Subchapter S (S-Corps) are also profit corporations, as are LLC’s. That is, they are all engaged in the business of making a profit – versus nonprofit businesses that are not.
In this case we’re talking about a general profit corporation that is not an LLC or S Corp.
Corporations are legal entities unto themselves. They are treated by the federal government as a legal entity, like a person with a social security number and income is treated. Corporations are owned by stockholder(s). A general corporation can have any number of stockholders that enjoy separation from creditors to the business that may seek legal action. The owner of a 1-person corporation may retain assets that are separate from the corporation in the case of legal action. It pays to incorporate your business in a number of ways. This is a big one. An individual or company holding stock in another corporation are usually limited in liability in the case of litigation – up to the amount they’ve invested in the corporation – but not more than that.
ADVANTAGES of Profit Corporations:
- Corporation owners’ assets are protected from debts and liability the business incurs on it’s own
- Florida Corporations have unlimited life extending beyond the illness or death of the owners. The corporation can go perpetually, once formed.
- Tax free benefits such as insurance, travel, and retirement plan deductions
- Easy to change owner of corporation – just sell stock to new owner
- Management can remain intact after change of owners
- Finding investors is made simpler by selling stocks/bonds
DISADVANTAGES of Profit Corps:
- Generally Profit Corps are more expensive to form than unincorporated alternatives like sole proprietorship or a partnership.
- More paperwork and legal hoops to jump through than without incorporating
- More County, State, Federal laws, rules and regulation to adhere to
- When compared to LLC’s and S- Corps, taxes can be much higher (double-taxation) in some cases
I want to incorporate now as a Profit Corporation >
Corporation Type: S Corporation
(also known as: S-Corp; S Corp; Subchapter S)
This corporation type was introduced with the federal Tax Reform Act of 1986. S Corporations suddenly became the corporate structure of choice for corporate tax purposes. As mentioned earlier, S Corporations are not a separate type of corporation from a profit corporation. The Subchapter S is a special designation by the IRS that can be applied for after incorporating the business as a profit corporation. The IRS grants these applications according to a specific set of rules and schedules you should investigate. It’s not difficult to obtain Subchapter S designation.
Business owners favor the S Corp designation for their companies because this type of corporation combines some of the good points of corporations, sole proprietorships, and partnerships.
Basically a Subchapter S corporation has the same structure, pluses and minuses of a general profit corporation, with the exception of it’s tax status with the federal government (IRS).
Put simply, when a general corporation creates profit it must pay the IRS federal corporate tax on that profit. If the company declares a dividend and disburses money to shareholders or workers – the shareholders must report that as earned income and pay taxes on it at the individual level. This process is better known as “double taxation”.
Subchapter S (S Corps) don’t get hit with this double taxation by incurring tax at the corporate AND again at the individual level because all income/loss is reported just one time on the personal tax forms of the shareholders.
Restrictions on Subchapter S Corporations
As of 1/1/97 Subchapter S must meet these guidelines:
Maximum number of shareholders in Subchapter S Corp? 75
Subchapter S corps can be owned by individual persons, estates, certain trusts, electing small business trust. Beneficiaries of the trust must be persons or estates but, charitable orgs can hold a limited interest as well. Interests in the trust must be given, not sold. Each person in the trust counts toward the 75 shareholder maximum.
S corps can now own 80+ percent of a regular C Corporation stock.
Shareholders in S Corps can be retirement plans with the right qualifications and Section 501(c)(3) charities (non profits).
S Corp shareholders must be citizens or residents of the USA.
Only one class of issued stock is allowed.
A maximum of 25% of Gross Corporate Income earned can be passive income.
The following can not be S Corps:
- A financial institution that is a bank;
- An insurance company taxed under Subchapter L;
- A Domestic International Sales Corporation (DISC); or
- Certain affiliated groups of corporations.
Please keep in mind, all the information on this page has been shortened in the interest of not repeating information you can find at the official IRS site about corporation types.
Note too that there are sometimes specific cases in which a S Corporation may owe income tax. For more detailed information about these changes and other aspects regarding S Corporation status, contact your accountant, attorney or local IRS office.
HOW TO FILE AN S CORPORATION? If you’ve filed your profit corporation form through one of our websites just give us a call or write us at the contact information found in the right side column of this website.
If you want to file a Subchapter S Corporation and you haven’t yet filed for a corporation click the link below:
I want to file a Subchapter S Florida corporation >
Corporation Type: Limited Liability Company (LLC)
LLC entities were part of the business structure in Europe and Latin America for a long time before the USA adopted the structure. Hawaii recently adopted the LLC which makes it a nationwide option for businesses keen on a corporate entity superior to other corporations and partnerships because an LLC combines the best of both of these.
Owners of LLC’s can have the corporate liability protection for their personal assets and debts of their business plus the federal tax advantages of partnerships and similar to S Corps. Basically an LLC is like a S Corp without many of the IRS restrictions.
- Personal assets – houses, cars, boats, savings are usually protected in the case of the business incurring debt.
- At the corporate level there is no tax on income. Income is taxed when it’s disbursed and is paid at the individual level on the federal tax returns of the owners & employees.
- Many options for management and organization of the LLC.
- LLC’s can be owned by individuals other than US citizens or residents. Foreigners can invest in LLC’s in the USA.
- LLC’s are regulated at the state level regarding the life of the company. In some states that limit is 30 years. There are other restrictions like a minimum of 2 persons are required to form an LLC in some states.
- LLC’s are not corporations – they are companies. They don’t have the benefits of stock ownership or stock sales because there is no stock.
Corporation Type: Non-Profit
How to form a Nonprofit corporation with 501(3)(c) status?
First – your group must become a corporation. You can file your business online with us as a nonprofit company using our online form.
Incorporation protects members of your board of directors and other members from personal liability in the case of a court lawsuit.
There are extra steps that nonprofit corporations must take in order to satisfy the tax-exempt status that IRS statutes 501(c)(3) give.
Incorporating your non-profit business:
- Decide on a corporate name that is available and doesn’t conflict with another company – profit or nonprofit.
- Fill out and submit your non-profit form here on this site – paying the fee which includes the state fees.
- Make application for federal and state tax exemptions.
- Develop bylaws that manage how your corporation will be run, and by whom.
- Create a board of directors.
- Hold initial board of directors meeting.
- Contact state and local business authorities to find out what else you might need to remain compliant with any laws at their level.
Once you’ve submitted your nonprofit corporation form through us and received your articles of incorporation back from the state you can then apply to the IRS for 501(c)(3) status. Filing within 27 months of your original business incorporation is recommended.
IRS forms you’ll need:
- IRS Form 818, IRS Package 1023, IRS publication 557.
The IRS website is at IRS.gov.
Filing for and receiving 501(c)(3) status is not a given. Your application can be denied or they may ask for additional information before finally approving your application.
Some states require application for nonprofit status too.
Your city might require you to have a solicitation license before you can ask for (solicit) funds for your nonprofit.