When you are starting a business, it is important to protect your assets. That means that you need to create a business entity for your company such as a corporation. One of the types of such entities is the benefit corporation. If you are not considering forming a non-profit corporation but want to make a positive impact on the environment and society, b-corporation can be a great choice for you. Unlike traditional types of corporations, b-corporations strive to contribute to the public. What makes them different from non-profits is that benefit corporations presume return on investments, and non-profits fund their business through charitable donations. B-corporation is a relatively new type of business, where directors balance the public interest and interests of shareholders and other stakeholders (for instance, employees).
If you choose this option, your personal assets will be secured through liability protection. Benefit corporation will also provide for the stock issuance in your company and help you demonstrate your reliability to customers.
There are various ways to set up a business, such as a sole proprietorship or an LLC. Corporations are very different from other kinds of business entities. A corporation is an independent legal entity, meaning it is separate from its owners, managers, and other people who control it. It does not cease to exist if owners or shareholders change or die. A C Corporation is a business entity, profits of which are taxed separately from its owners. The owners are shareholders who elect a board of directors for managing the company. They have limited liability and are not personally liable for their business debts. They also cannot be sued for a corporation’s wrongdoings.
Other benefits of C Corporation
– Unlimited number of stockholders;
– Great possibilities for tax savings;
– Can raise additional funds by selling stocks;
– The owner can issue different classes of stocks to attract different groups of investors.
What is a Nonprofit Corporation?
Nonprofit corporations are often a subject of discussion and praise but a few questions may arise. Like what is a nonprofit corporation, why are they important, and how are they to my advantage? A Nonprofit corporation is a special type of corporation that has been organized to meet specific tax-exempt purposes. To qualify for Nonprofit status, your corporation must be formed to benefit: the public, a specific group of individuals, or the membership of the Nonprofit.
Some examples of Nonprofits include: religious organizations, charitable organizations, political organizations, credit unions and membership clubs.
What Are The Advantages Of A Non-Profit Corporation?
As a nonprofit corporation, your organization can get state and federal exemptions from corporate income taxes plus certain other taxes. Federal corporate tax rates can be very high while state corporate taxes can take a bite as well. If you expect to earn large amounts of money from your mission-related services, exhibits, product sales, or performances, you’ll want to seek an exemption. A tax-exempt nonprofit also saves on local taxes from state and county.
Tax Exempt Public and Private Donations
Once incorporated, most charities go on to apply for nonprofit designation from the IRS. Also, as a 501(c)(3) nonprofit you can receive grants and donations. Foundations also only give grants to 501(c)(3) organizations.
Individual donors to your nonprofit corporation can claim personal federal and state income tax deductions, and bequests may be exempt from federal estate taxes.
Protection from Personal Liability
One of the most significant advantages of incorporation has to do with protecting members of your organization from personal liability.
Board members, officers, and employees of your organization receive protection from liability for corporate debts or lawsuits. Creditors can only go after your corporate assets, not the personal assets of the people who manage, work for, or volunteer for your nonprofit.
Even if you do incorporate and receive some of these protections, it is wise to purchase liability insurance to cover situations that may lie outside of incorporation law.
A corporation is separate from the individuals who manage or organize it. It is this separate legal existence that provides protection from liability. But it also means that the organization becomes immortal in a way.
The nonprofit corporation continues to exist beyond the lifetime or involvement of the people who began it or who have managed it. Also, it is more attractive to donors who want to fund a cause for the long term.
Being a corporation opens the door for employee benefits such as group life insurance, health insurance, a pension plan, etc., advantages not available to workers in unincorporated organizations.
Forming a nonprofit corporation is not simple. But the preparation requires clarity about mission, operating rules, and procedures for decision making.
It’s essential for a nonprofit, whose board members may hold opposing ideas, to have clear-cut rules about delegation of authority and how to get things done. Furthermore, having all of these principles in the articles of incorporation and bylaws makes running the organization much easier.
Professional Corporation or PLLC
Professions that need to be professional corporations include many who must have a state license, such as dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists, psychiatrists, and psychologists.
What is a Professional Corporation or Professional LLC?
Professional corporations and professional limited liability companies (PLLC) are corporations and limited liability companies organized for the purpose of providing professional services. Usually, professions where the state requires a license to provide services require the formation of a professional corporations or PLLC.
What Is Different About Professional Corporations?
Professional corporations have more restrictions than traditional corporations. They are also subject to specific rules in the California Business and Professions Code. For example, only licensed persons can be shareholders of a professional corporation. In addition, professional corporations are subject to the regulations of the applicable governmental agency overseeing the profession.
Why Form A PLLC?
Most professional corporations do not provide liability protection for malpractice. Although, you could have limited liability protection for claims not based on malpractice, such as a slip and fall accidents. In addition, by forming a professional corporation you may be able to deduct payments for benefit plans, such as disability or health plans or group term insurance.
What is an S Corporation?
An S corporation (S corp) is a unique type of corporation which is done through an IRS tax election. Also, an eligible domestic corporation can avoid double taxation by electing to be an S corporation.
An S corp is a corporation with the Subchapter S designation from the IRS. What makes the S corp different from a traditional corporation (C corp) is that profits and losses can pass through to your personal tax return.
Consequently, the business does not receive tax itself. Also, only the shareholders are taxed. However: any shareholder who works for the company must pay him or herself “reasonable compensation”. Basically, the shareholder must receive compensation fair market value, or the IRS might reclassify any additional corporate earnings as “wages.”
Some S Corporation Advantages:
- Limited liability. Company directors, officers, shareholders, and employees enjoy limited liability protection.
- Pass-through taxation. Owners report their share of profit and loss on their individual tax returns.
- Elimination of double taxation of income. Income is not taxed twice – once as corporate income and again as dividend income.
- Investment opportunities. The company can attract investors through the sale of shares of stock.
- Perpetual existence. The business continues to exist even if the owner leaves or dies.
- Once-a-year tax filing requirement. Versus c corps, which must file quarterly.
To qualify for S corporation status, the corporation must:
- Be a domestic corporation
- Have no more than one hundred shareholders
- None of whom are nonresident aliens or corporations
- All of whom consent to the election
- Have only one class of stock
- Not be a member of an affiliated group (only individuals, estates, and certain exempt organizations and trusts qualify)
Let DOT Operating Authority help you file for C Corporation!
At DOT Operating Authority we will be happy to help you with every aspect of starting a successful business. Our team can assist you with filing for any kind of business entity, starting with sole partnership and ending with C Corporation. We will make sure you meet all the legal requirements and your paperwork is in order. Our specialization is the trucking business, and we can help you with every step of establishing your trucking company. Obtain a USDOT Number and get an authority to operate, file for a corporation and comply with all the legal rules – easily and without any mishaps.