Types of Corporations You Should Know About

A Corporation is a business group (entity) conducted and controlled by a group of people referred to as the Board of Directors; the directors are chosen by the owners of the corporation and they are referred to as shareholders. Documentation, including the Articles of Incorporation document, with a state filing agency recognizes a corporation in whole as a legal, individual body. One of the major disadvantages of a corporation is the double taxation. As its own kind of “being” a corporation is responsible for its collected debts and obligations.


A standard corporation is usually referred to as a C Corporation, or C Corp. Another form is referred to as a Subchapter S Corporation, otherwise known as an S Corp.  The IRS defines S Corporations as “corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.” Shareholders would have to report business income and losses on their personal tax returns and are taxed at the individual income tax rate level only. Double taxation does not occur because S Corporations are not taxed at the corporate income level.  According to the IRS, S Corps are responsible for “certain built-in gains and passive income at the entity level.”


The following requirements must be met in order to qualify for S Corporation status:


  • Must be a domestic corporation
  • Have only allowable shareholders
  • Including individuals, certain trusts and estates and
  • May not include partnerships, corporations or non-resident alien shareholders
  • Have no more than 100 shareholders
  • Have only one class of stock
  • Not be an ineligible corporation (i.e.  certain financial institutions, insurance companies and domestic international sales corporations).

For more information go to irs.gov.


Professional Corporations are the types of corporations that are organized by lawyers, dentists, architects, physicians, accountants, engineers or other member-based professions. The ownership of shares within this type of business entity is limited to individuals with the business license(s) to practice the specified profession for which it is incorporated. Shareholders of professional corporations enjoy limited liability only under special circumstances.


Nonprofit Corporations are formed for the sole purpose of conducting charitable, political, athletic, political, religious or social service type of services without any way towards financial gains. There is no guarantee that this kind of corporation will be exempt from state and federal income taxations; an appropriate state taxing authority and the IRS must approve a tax-exempt status. 







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