Corporations Reap the Benefits

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Corporations Reap the Benefits

Braedon Harris, Co-Editor-in-Chief

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Today, there are over 30 million small businesses registered in the United States. These businesses make up 99.7 percent of U.S. employer firms and account for 64 percent of net new private-sector jobs.


A firm is a business organization, such as a corporation, limited liability company or partnership, that sells goods or services to make a profit. According to the U.S. Small Business Administration (SBA), in 2010 there were 27.9 million small businesses- defined by The Office of Advocacy as an independent business having fewer than 500 employees- and 18,500 firms with 500 employees or more.


In the U.S., there are four main types of business entities: sole proprietorships, partnerships, limited liability companies and business corporations. Each of these are different and have their own advantages and disadvantages in regards to owner liability, taxation and government regulation.


“The general population does not realize that there’s many different types of businesses,” DECA competition officer Esteban Zapata said. “But if you realize what they can bring and what they can do differently it can help people financially.”


One type of business organization that is popular in the U.S. is a corporation. A corporation is a company or group of people that is recognized as a single entity by law, separate and distinct from its owners. A corporation is viewed as a person in the eyes of the law, and is especially beneficial to larger companies who have shareholders.  According to the The Global Alliance of SMEs (GASME), a non governmental organization approved by the U.S. government, a corporation functions in the same manner as a person and has the same rights and responsibilities as a person. The corporation may make contracts, assume liabilities, sue and be sued.


“To grow big you have to have sponsors, revenue and capital,”  Zapata said. “So [people] make corporations to get funding and to have people invest into the company, but in response they get a [percentage] of the company or their stocks.”


In the U.S., the three main types of corporations are designated as C,S and limited liability companies (LLC). Most major corporations are listed as C, while most smaller firms S. While they share many of the same benefits, the biggest difference between the two is that C corporation shareholders are subject to double taxation. LLCs combine traits of corporations, partnerships and sole proprietorships which is why many refrain from categorizing them as corporations, instead leaving them as a separate business type. One benefit that many see in an LLC is that there is less paperwork to file than in the other business types. However, when someone owns an LLC, they are issued a statement which lists their share of the LLC’s income and expenses to file on their personal taxes.


“[Choosing] depends on the magnitude of the company,” Zapata said. “If you’re going to have a family business, there’s some rules and legal stuff that you’re not going to have to go into. But if you’re a bigger company, their corporation is going to have a lot more funding and [be] more open to the public, so they have different rules and guidelines to make sure both themselves and the customers get protected.”


Although corporations are viewed as a person in legal terms, they hold many benefits over normal individuals. For instance, according the the SBA, the corporate tax rate is usually lower than the individual income tax rate. Corporations also hold many advantages over the other business types, the biggest being that they don’t hold individuals liable for the company’s debt or legal obligations. However, there are disadvantages that come with the establishment of a corporation. Forming a corporation includes a lot of administrative fees and legal requirements. They must also file articles of incorporation, and obtain state and local licenses and permits, which can be very expensive.


“A major part of a corporation, for a public corporation, they can sell shares,” PLTW engineering teacher David Nash said. “If you want to raise money for your company, you can become a publicly traded company, create a bunch of shares, and then sell those shares. However, the main benefit for most people, is to kind of cap their liability.”


Although many feel that businesses are only for large operations, this isn’t the case. When establishing a business, there are various types of businesses to consider establishing and certain benefits that each hold over on another. However, it is important to weigh these options carefully and be able to reap all the benefits possible.


“When people hear the word corporation, they think big business,” Zapata said. “But they don’t realize it can be such a small thing like a family business. Considering different types of corporations allows you to structure your money and understanding what you have to do financially.”

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