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There are four main types of corporate structures that businesses can organize themselves as: a General Corporation, an S-Corporation, a C-Corporation, or a Limited Liability Company (LLC). The structure that a business chooses to construct itself as determines how the company is financially taxed from any profits that it earns, making it very important to carefully choose the right type. A large amount of time and research is required in order to choose the right type of structure to follow. The General Corporation is the most common corporate structure that businesses follow, but, like all others, it also has its own advantages and disadvantages.
When a business incorporates itself as a General Corporation, stockholders are the owners. There is no limitation on how many stockholders can invest in a General Corporation and the investors are not liable to any business creditors. The personal liability of any stockholder is, most times, limited to how much he or she initially invested into the corporation. Companies that take part in this type of structure are obliged to more state and federal regulations than other types of companies, and this type is also more expensive to form. Some of the most advantageous aspects of creating General Corporations are the tax-free benefits and the easiness of raising capital.
The “classic company structure” is referred to as the C-Corporation. Although these types of corporate structures are similar to General Corporations, there are significant differences. A C-Corporation must have a director that offers to sell shares to any existing investors before offering them up for sale to new ones. In the United States, not every state recognizes this type of structure, but those that do limit the number of shareholders from 30 to 50.
An S-Corporation, also referred to as a Small Corporation, is mostly found in businesses of small sizes. No more than 75 shareholders can take part in this type of corporation and they must decide on a single type of stock to be sold. All investors have to include the profits or losses that they incur through this type of corporation on their personal income, but this allows them to not be double taxed. The shareholders must also hold annual meetings in which each shareholder is present. Many small businesses prefer to organize themselves as an S-Corporation because limited liability protection is present and taxable gains are reduced if the company owner decides to sell the company.
In Latin America and Europe, of all corporate structures, the LLC is the most dominant. This type of organization allows the owners to protect their personal assets from any business debt. Many businesses prefer to organize themselves according to LLC corporate structures because they are allowed great flexibility when it comes to the management of the company. There are many foreign investors who prefer this type of structure because there are no ownership restrictions.