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A corporation is an organization upon which a government has conferred the legal status of personhood. Any kind of organization can be recognized as a legal person by the government, but most commonly, corporations are businesses. In the following, we’ll review four types of corporations, pointing out their distinguishing features and the various advantages they afford. We’ll also touch upon how to go about forming a corporation. Once you’ve read it, you’ll be in a better position to decide which type of corporation is right for you.

1. Nonprofit Corporations

Nonprofit corporations are organizations formed for purposes other than making profits for their owners. In general, there are a few different sub-types of nonprofit corporations. Charitable nonprofits are formed for the purpose of providing some benefit or service to the community, and religious nonprofits exist in order to fulfill religious purposes. In contrast, the purpose of mutual-benefit nonprofit corporations is to act for the benefit of their owners, albeit in a way other than making monetary profits. Sometimes, the term “nonprofit” is reserved for charitable nonprofits exclusively, while the term “not-for-profit” is used to refer to mutual-benefit nonprofit corporations.

2. Public Corporations

Public corporations are entities that are formed as a result of government legislation. This can include local governmental bodies, such as municipal or county governments. Universities are another commonly-met-with kind of public corporation. At the level of the federal government of the United States of America, the Federal Reserve Bank is one important example of a corporation formed by governmental action.

3. Professional Corporations

Professional corporations are legal entities that are formed to organize the activities of licensed professionals, such as physicians, architects, attorneys, or accountants. Although these are for-profit corporations, this type of corporation has its own distinct characteristics. For example, the organization of professional corporations is generally looser than that of the more-common business corporation: The owners of a professional corporation are not held liable for certain kinds of failures committed by other owners, which is to say that the individual professional remains solely responsible for his own negligent actions.

4. Business Corporations

The business corporation is the most commonly-met-with kind of corporation, which makes its characteristics the closest to the conceptual stereotype that springs to mind when one hears the word “corporation”. Business corporations exist for the purpose of making a profit for their owners, who are also called “shareholders”. Business owners apply for recognition from the government, and the corporation is formed when the government accepts the application and extends its recognition. The legal personality of business corporations is stronger than that of professional corporations: All of the owners of a business corporation are liable for its failures, even as they also are eligible to receive a share of the profit it makes.

What is a Corporation?

A corporation is an organization that, in some way, has received official recognition from the government as a single entity. The word “corporation” is derived from the Latin word corpus, meaning “body”, and its meaning operates by analogy to the unitary intentional action of animal organisms. On this basis, groups of people who work together for a single purpose are granted legal personhood, allowing corporations to sue and be sued in courts of law. Although for-profit business corporations are the most commonly-met-with type of corporation, any entity that receives official government recognition as a legal person is a corporation.

What is the Most Common Type of Corporation?

The business corporation is the most common type of corporation in terms of numbers and visibility. In 2019, the number of businesses in the United States of America was estimated at around 30 million, a number which included around 2 million C-corporations and 7 million S-corporations. Yet in terms of jurisdiction, the state is the most widespread kind of corporation. The state is a corporation that recognizes no natural limit to its jurisdiction, which naturally includes all of the business corporations that it has created. Thus, all kinds of corporations, whether nonprofit or for-profit, religious, public, or professional, are extensions of the governmental state, which itself can be viewed as a sui generis corporation that announces and proclaims its own existence.

How Do Experts Classify Corporation Types?

Experts classify corporation types with reference to the purpose for which the corporations exist. For-profit corporations exist for the purpose of making and distributing monetary profits. Charitable non-profits exist to benefit society in some way, while mutual-benefit non-profits exist to benefit their owners in a way that does not include making and distributing monetary profit. The purpose of religious corporations is to serve some religious purpose, while public corporations exist for the purpose of advancing the interests of the state. Finally, as a corporation, the state exists in order to establish law and order over the territory under its military control.

How Do I Form the Best Type of Corporation?

The best kind of corporation for you depends upon your circumstances. Given that few of our readers are likely to have recently gained military control over some territory, it’s also unlikely that you will be looking to form a state, so we’ll leave that for another time. If you’re looking to receive a great deal of public investment, the business corporation is an excellent choice, since that mode of incorporation will allow for shares in your company to be sold on public stock exchanges. If the enterprise in which you’re engaged is primarily intended to be of benefit to the public, the non-profit type of corporation can lighten your tax burden. In any case, you’ll need to consult the laws and regulations that govern your jurisdiction, and the highly-qualified accountants at NumberSquad are here to help.

What are the Characteristics of the Best Type of Corporation?

The best type of corporation will be the one that meets the needs that your business or enterprise is up against.

  • If you’re looking to shield yourself and your co-owners from liability, gain public investment and distribute profits, the business corporation will be best. 
  • If you’re looking to organize the activities of your fellow professionals in order to make the distribution of profits more efficient and in order to gain legal standing in a variety of jurisdictions, the professional corporation will be right for you.
  • If you have made significant investments in charity or religion, the charitable non-profit corporation may give you significant advantages. 
  • In the off-chance that you have recently gained military control over some territory, the state-type of corporation will give you the power to create as many corporations as you like.

The legal personhood granted through recognition as a corporate organization has the potential to provide various kinds of advantages to your organization. If you and a group of others are working together for a common purpose, it might be a good idea to gain recognition as a corporation. This will allow you to act collectively for legal purposes and can alter your standing before the law, including for financial liabilities, among other advantages. If you’re not sure which type of corporation is right for your organization, the financial professionals at NumberSquad are here to help.

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