There are different types of corporations to accommodate various business needs, goals and legal considerations. The specific kind of corporation available to you depends on the state in which you incorporate; however, here are some common types of corporations.

C-Corporation

A C-corporation is the default type of corporation. They are subject to corporate income tax. In the event that profits are distributed to shareholders, known as dividends, then an additional tax is assessed on the shareholders’ personal returns. This is known as a double-taxation structure and is one of the cons of having a corporation.

S-Corporation

You can avoid the double taxation structure of a C-corp by creating an S-corp. This is a tax election status created by filing form 2553 with the IRS. This election allows corporations to bypass paying corporate income taxes and pass the taxes through to the shareholders. To qualify for S-corporation status, the corporation must meet specific criteria, such as having no more than 100 shareholders and having only one class of stock.

Nonprofit Corporation

Nonprofit corporations are established for charitable, educational, religious or other socially beneficial purposes and are usually exempt from income taxes. However, there are specific requirements and regulations for nonprofit corporations that a corporation must adhere to or risk losing the tax-exemption status. These regulations are on both the federal and state level.

Professional Corporation (PC)

A professional corporation is a specialized corporation used by licensed professionals such as doctors, lawyers, accountants and architects. It allows these professionals to operate their businesses as corporations while maintaining personal liability protection for their professional actions. Most states require that all shareholders be members of the same profession as the PC.

Public vs. Private Corporations

Public and private corporations differ significantly regarding how they raise capital. A public corporation utilizes initial public offerings to sell shares directly to the public. In comparison, private corporations sell shares directly to specific investors, such as venture capitalists or angel investors.

Public corporations are the most common type of corporation. Their shares can be traded openly on an exchange. Private corporations, in contrast, are not listed on stock exchanges and sell their shares privately. Private corporations face less stringent regulations, allowing more flexibility for them to run and expand their businesses.

Limited Liability Company (LLC)

While not a corporation in the traditional sense, this is a popular business structure that combines elements of a corporation. It provides limited liability protection to its owners, known as members, and offers flexibility in management and taxation. They often require less paperwork and are more affordable to create than a corporation. An LLC can elect to be taxed as a corporation or maintain pass-through taxation status.