Differences Between a Corporate Structure and a Sole proprietor Structure
A corporation is a legal entity known as an individual or a business comprised of one or more members. It may not have any shareholdings. Early corporations were established by the Charter. However most jurisdictions today permit the formation of new corporations either through incorporation or registration.
The main aim of a corporation is to separate the management of the business from the personal assets of the shareholders. This prevents the corporations from incurring debts and also from having to pay income tax. The company’s main activities are typically conducted behind closed doors and the assets of the corporation are usually based on the value of its shares and dividends. Therefore if the corporation incurs a loss it cannot pass on its losses to its shareholders. The word “corporation” does not have legal meaning in itself, although the meaning of the word “corporation” is legally tied to the operation of a business undertaking. The courts have issued certain types of corporation resolutions that allow a corporation to be operated as a business entity for tax purposes.
There are some types of corporations that are taxed as non-profit entities. In these circumstances, the company is taxed only upon its income and assets rather than upon its shareholders. A charitable corporation has been designed for the benefit of a specific charity and therefore is not taxable. A private organization is not considered a non-profit corporation but can be considered a for-profit entity when it has revenue of a certain minimum amount.
Some types of businesses are actually individual shareholders within larger companies. For instance, a sole proprietorship is generally a corporation with no equity or ownership interests in the business itself. Under this type of business model, an individual shareholder owns all of the shares in the corporation. Because of the way this type of business is set up the owners are rarely taxed individually on their shares. This is why the majority of sole proprietor corporations are formally organized as partnerships.
Many small businesses are actually C corporations. A-C corporation is any business that has opted to be classified as an S corporation instead of an individual shareholder. Because it is officially recognized by the IRS as an S corporation it receives tax benefits at the corporate level. Individual shareholders will not receive the same tax benefits. In addition, as an individual shareholder, the individual has fewer voting rights and is typically not allowed to exercise more power than other shareholders.
There are two major differences between a corporation and an individual shareholder. One of them is that corporations are legally considered separate entities from the people who own them. Whereas individual shareholders are considered to be owners with partial ownership in the business. This means that if the business owner’s personal assets fall into debt the corporation may be sued for those debts.
Another difference between a corporation and an individual shareholder is that corporations have limited liability. Unlike an individual, the owners of a corporation are not personally liable for the debts of the corporation. In the case of personal liability, if the corporation’s stock loses value or it becomes bankrupt then the shareholders could potentially be held personally liable for the corporation’s debts. However, unlike a partnership, an S corporation does not have any sort of informal business structure at all. An S corporation can only have one owner and one board of directors.
There are several ways an S corporation can benefit from a lawsuit settlement. If a corporation’s stock losses value because of litigation debt, the corporation can create another corporation and start over again as a legal entity. In addition, the corporation can use its debt to purchase new stocks in an attempt to increase its value again. The only way for a corporation to end up being sued for debts is if all the directors sign a stipulation agreement.