Types of For-Profit Corporations
For-profit corporations generally fall into two categories: private corporations owned and operated by a closed group of people, and corporations that allow the public to own shares.
Both in theory and in practice, shareholders can exercise control in the business's affairs by casting votes on major issues that come before them, generally based on the number of shares they own. A person who owns 5 shares of a corporation might get 5 votes; a person who owns 100 shares would be able to cast 100 votes.
When planning to organize as a nonprofit corporation, familiarity with a few basic types of for-profit organizations can be useful since many of the practices developed for these groups can be adapted to the nonprofit world as well.
It would be impractical to discuss every type of for-profit corporation. There are many volumes, and indeed entire universities, devoted to nothing else. Rather, what follows are three examples of common types of for-profits.
This simplified overview of for-profit corporations is designed to give you, as an organizer of a nonprofit, a basic understanding of the environment you are entering. It is not meant to be an all-inclusive analysis.
Sole proprietorships are the most basic, elemental, and quite possibly the oldest form of formally recognized corporation. It consists of one person, and it provides the only exception to the notion of a corporation as a separate and unique entity. In a sole proprietorship, the person is the business; she is responsible for everything that takes place within the business, including any debts or legal liability.
General corporations are the most common type of for-profit company. In these situations, the corporation is a separate, unique legal entity that is owned by any number of stockholders who may receive dividends and buy and sell their shares for a profit or a loss. A stockholder's personal liability is generally limited to the amount of his investment in the corporation. A slight variation of the general corporation is called a closed corporation, which is different only in that there are a limited number of shares involved.
Limited Liability Corporations
Limited liability corporations (LLCs) have become all the rage among people interested in forming a simple for-profit corporation. The partners are protected by the limited liability from losses, they maintain direct control of the activities, and they are recognized by the state in which they incorporate as a corporation. From a tax perspective, the owners or partners file the profits as part of their personal income tax.