Glossary of Common Terms

Nonprofits Corporation

As the name suggests Not for Profit Corporations are legal entities of which no part of the income or profit is distributed to its members, directors or officers. Any profit yielded by the company by the end of a fiscal year must be reinvested or divested into the corporation. Nonprofits may be organized for any lawful purpose so long as it is not for a pecuniary gain, for example charitable, benevolent, educational, religious purposes, among others. Despite what many believe, nonprofits do have to pay taxes; however, some nonprofits qualify for to be recognized as exempt from federal income tax. In order to apply for a tax-exempt status the nonprofit must apply with the Internal Revenue Service based on the type of organization. For instance, to be exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be created and work exclusively for the exempt purposes expressed in the Internal Revenue Code section 501(c)(3) and no income may benefit any private shareholder or individual.

Nonprofits have a very similar structure to profit corporations but generally have a more requirements for example the board of directors must consist of three or more individuals.

The purpose behind a nonprofit corporation generally requires the founding members to be very invested in objective of the company and promoting its charitable interest; let us handle the company’s organization so you may focus on what lays ahead.

LLC

A Limited Liability Company (LLC) is a legal entity organized under the laws of the state of incorporation. As an independent legal entity, LLCs may engage in legal battles— sue and be sued, enter into contracts, among others. Limited Liability Companies are able to pursue financing for business ventures, and incur debt. However, generally the debts of the company do not affect and are not debts owed by the owners.

Limited Liability Companies are very flexible and may be organized forany legal purpose. LLCs can be managed by its owners or a manager, and its structure is less complex of that of a corporation. Limited liability companies are generally perceived as easier entities to manage and that makes them the preferred company type for new business owners.

C-Corporation

A C corporation is one of the terms used to refer to a profit corporation or simply, corporation—they are all one and the same thing. A corporation is a separate legal entity, distinct from its owners, and generally may exercise the same rights and privileges as a natural person. It may engage in legal battles, contracts, joint ventures with other legal entities, the sale, transfer or purchase of assets, among others.

Since the corporation can incur debt and enter into agreements on its own behalf, the owners of a corporation, also known as shareholders, are not personally liable for the debts and obligations of the corporation, subject to a few exceptions. Thus, the liability of the owners for corporate losses is limited to the amount of their investment.

The management of a profit corporation is centralized in the board of directors. The structure of a corporation is as follows, it is owned by its Shareholders, managed by a board of directors, and the day to day activities are handled by the corporation’s President and other officers. The duties and obligations of the shareholders, directors, or officers to the corporation and to each other may also be regulated by the Corporation’s bylaws or shareholder agreements.

A corporation has perpetual existence and continues unaffected by changes in ownership or management.

S-Corporation

An S corporation is a profit corporation that made the election to be taxed under Subchapter S of the Internal Revenue Service Code. Under this option the corporation itself is not taxed, and all of its taxable income is taxed directly to the shareholders in proportion to their stock holdings, thus avoiding the double taxing of corporate earnings. This is very advantageous to companies that distribute to its shareholders most of the earnings or if the corporation has a net loss which the shareholders can offset in their individual income tax.

In order to be eligible for subchapter S election, the corporation must be domestic, it must only have one class of stock, no more than 100 shareholders. The shareholders must only be certain trusts, estates or individuals are not non-resident alien.

The management of an S corporation is centralized in the board of directors. The structure of a corporation is as follows, it is owned by its Shareholders, managed by a board of directors, and the day to day activities are handled by the corporation’s President and other officers. The duties and obligations of the shareholders, directors, or officers to the corporation and to each other may also be regulated by the corporation’s bylaws or shareholder agreements.

A corporation has perpetual existence and continues unaffected by changes in ownership or management.