Which form of business organization is owned by stockholders or shareholders?

A corporation is a business entity that is owned by its shareholder(s), who elect a board of directors to oversee the organization’s activities. The corporation is liable for the actions and finances of the business – the shareholders are not. Corporations can be for-profit, as businesses are, or not-for-profit, as charitable organizations typically are.

Types of Corporations

There are two major types of corporations as well: Subchapter C corporations, which are larger organizations owned by multiple shareholders, which can also be other businesses, and Subchapter S corporations, which are often (but not always) smaller businesses owned by an individual shareholder.

Pros

Before creating a corporation, consider what you hope to gain from establishing this separate entity. The biggest advantages of having a corporation are:

• As with some other types of businesses, corporations provide liability protection for its owners, who are called shareholders.
• Companies hoping to raise money from investors will have an easier time as a corporation, which can sell ownership shares.
• Corporate profits are taxed, but at a lower rate than the personal income tax rate individuals pay.
• Potential employees may find working for a corporation, with the prospect of ownership benefits, to be more appealing than working for a privately-held company.
• The corporation can offer a medical reimbursement plan, deducting the cost of providing insurance to employees while allowing employees to use the benefit tax-free.

Cons

While corporations can certainly shield owners from liability, the downsides are sizeable and very costly:

• C Corporations are complex and expensive to set up.
• Once established, corporations spend significant sums of money to stay on top of changing business regulations and timely filing of paperwork. They are best for large organizations with many employees.
• Corporations pay federal, state, and sometimes local taxes on profits, unlike LLCs.
• The corporation pays taxes on dividends paid to shareholders, who then pay taxes on that income themselves.

Forming a Corporation

Corporations are often formed in the state in which the business operates, but it doesn’t have to be. Some corporations are formed in states thought to be pro-business, such as Delaware or Nevada, although that creates extra paperwork. You then need to register the corporation as a foreign entity in the state in which you are doing business, and pay taxes to that state.

The next step is creating Articles of Incorporation, which are filed with the state in which you have registered the corporation. These include:

• The name and physical address of the business.
• A description of the business and its goods and services.
• The name and address of the registered agent, or the person authorized to receive official notices.
• A count of the number of shares issued and to whom.

And then create by-laws, which are the rules of the corporation. They include, at a minimum:

• How often the board of directors meets, and when.
• Whether the business operates on a calendar or fiscal year.
• How long board members can serve.
• Rules for changing by-laws.

By-laws can be amended as needed once the corporation is formed.

Considerations

If you expect at some point in the near future to take your company public through an initial public offering (IPO), a C corporation may make a lot of sense.

This is a business run by one individual for their own benefit. It is the simplest form of business organization. Proprietorships have no existence apart from the owners. The liabilities associated with the business are the personal liabilities of the owner, and the business terminates upon the proprietor's death. The proprietor undertakes the risks of the business to the extent of their assets, whether used in the business or personally owned.

Single proprietors include professional people, service providers, and retailers who are "in business for themselves." Although a sole proprietorship is not a separate legal entity from its owner, it is a separate entity for accounting purposes. Financial activities of the business (e.g., receipt of fees) are maintained separately from the person's personal financial activities (e.g., house payment).

Partnerships–General and Limited

A general partnership is an agreement, expressed or implied, between two or more persons who join together to carry on a business venture for profit. Each partner contributes money, property, labor, or skill; each shares in the profits and losses of the business; and each has unlimited personal liability for the debts of the business.

Limited partnerships limit the personal liability of individual partners for the debts of the business according to the amount they have invested. Partners must file a certificate of limited partnership with state authorities.

Limited Liability Company (LLC)

An LLC is a hybrid between a partnership and a corporation. Members of an LLC have operational flexibility and income benefits similar to a partnership but also have limited liability exposure. While this seems very similar to a limited partnership, there are significant legal and statutory differences. Consultation with an attorney to determine the best entity is recommended.

Corporation

A corporation is a legal entity, operating under state law, whose scope of activity and name are restricted by its charter. Articles of incorporation must be filed with the state to establish a corporation. Stockholders' are protected from liability and those stockholders who are also employees may be able to take advantage of some tax-free benefits, such as health insurance. There is double taxation with a C corporation, first through taxes on profits and second on taxes on stockholder dividends (as capital gains).

Small Business Corporation (S-Corporation)

Subchapter S-corporations are special closed corporations (limits exist on the number of members) created to provide small corporations with a tax advantage, if IRS Code requirements are met. Corporate taxes are waived and reported by the owners on their individual federal income tax returns, avoiding the "double taxation" of regular corporations.

What are the business owned by stockholders or shareholders?

What forms of business organization that owners are called shareholders or stockholders of the company?