Choosing the Right Business Structure: A Look at Corporation Examples

Written by Wesley Henderson

February 4, 2024

lots of words on page with CORPORATION highlighted in red

Starting a business is exciting, but choosing the proper business structure is crucial. Two popular options are corporations and limited liability companies (LLCs).

In this post, we’ll discuss what a corporation is, its essential characteristics, and if it’s the right fit for your business.

Understanding Corporations

A corporation is a legal entity separate from its owners, known as shareholders. These entities have certain advantages, such as limited liability for shareholders and the ability to raise capital by selling stocks. However, corporations also come with complex structures and rigorous formalities.

Basic Characteristics of Corporations

The following are some key characteristics of corporations:

  • Legal Entity: Corporations are separate legal entities from their shareholders. This separation means that the corporation itself can be sued, enter into contracts, and own property.
  • Limited Liability: Shareholders are not personally responsible for the corporation’s debts and liabilities. Their personal assets are secure from any legal action taken against the corporation.
  • Perpetual Existence: Corporations exist independently and have a continuous life, even if shareholders leave or pass away. The business can continue to operate and conduct business as usual.
  • Stock Issuance: Shares of stock that can be bought and sold represent ownership. This feature allows corporations to raise capital by selling stocks.
  • Complex Structure: Corporations have a complex management structure that includes shareholders, directors, officers, and employees. Decisions come from a majority vote of the board of directors, who are the officers handling day-to-day operations
  • Formalities: Corporations must fulfill certain formalities, such as holding annual meetings and keeping detailed records of corporate activities. Failure to comply with these formalities may result in the loss of limited liability protection.
  • Double Taxation: One major drawback is double taxation, where the corporation pays corporate taxes on its profits, and shareholders also pay personal income tax on dividends.

Corporation Examples

To better understand corporations, let’s look at some examples of well-known corporations:

  • Apple Inc.: A global tech giant, Apple is a publicly traded corporation with shareholders and a complex organizational structure.
  • The Coca-Cola Company: This beverage giant is another publicly traded corporation with subsidiaries that operate under its parent company.
  • Amazon.com Inc.: Amazon is a well-known e-commerce company that started as an online bookstore.
  • Ford Motor Company: Ford is a multinational automotive manufacturer with subsidiaries worldwide.

Is a Corporation Right for Your Business?

Corporations are generally more suitable for large businesses that require a significant amount of capital and have complex operations. However, they may also benefit smaller companies looking to expand and raise funds by selling stocks.

To determine if a corporation is the right fit for your business, consider your business goals, size, and industry. If you have a small business, an LLC is often a better option as it offers similar benefits without a corporation’s complexity and strict formalities.

Why Consider an LLC Instead?

Choosing an LLC can be more practical and straightforward for many small business owners. Here’s why:

  • Simplicity: LLCs offer a simpler management structure with less formality and fewer required meetings.
  • Tax Flexibility: Unlike corporations, LLCs have pass-through taxation, where profits and losses “pass through” to the owners’ personal tax returns.
  • Flexibility in Ownership: LLCs allow for more flexibility in ownership structure, making it easier for businesses with multiple partners or changing ownership.
  • Limited Liability: Like corporations, LLCs provide limited liability, protecting personal assets from business debts.

Final Thoughts

Choosing the proper business structure is crucial, and understanding the distinctions between a corporation and an LLC is essential. While corporations have proven successful for many large enterprises, they may not be ideal for every business, especially those just starting out. For entrepreneurs seeking simplicity, flexibility, and ease of filing, an LLC could be the key to a smoother business journey.

For more information on business structures, Drafted Legal provides comprehensive legal guidance and templates. We can also help you set up an LLC quickly and easily.

Contact us today to get started.

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