What is a Profit Corporation?

A profit corporation is a type of corporation. Another name that is often used for a profit corporation is “for profit corporation”.

A for-profit corporation is one intended to operate as a business returning some profit to the owners (shareholders, officers, members). A for-profit corporation, depending what state it was registered in and where it does business may be operated either as a stock corporation or as a non-stock corporation.

Nonprofit companies are always non-stock corporations.

Corporations are forms of business organization. A for profit corporation consists of a group of people created by law with powers and liabilities separate from its stockholders. In reality, the corporation is a distinctly separate legal entity from those that manage and own it. As such, the corporation is owner of the corporate property and is responsible for, any corporate liabilities (debt). The corporation is the entity that would be sued, and can sue some other entity or individual. Corporate management is typically accomplished through use of a board of directors and officers who are usually elected by the corporation’s stockholders if any exist.

Persons investing in the company as stockholders and company officials are usually covered against personal loss, other than what they’ve invested in the company in terms of stock bought. Corporations are governed by its “Articles of Incorporation,” and Bylaws.

In general, two corporate structure types exist:

1. A closely held corporation is one where there are a small number of shareholders who own the corporation’s shares, share transfer restrictions are likely, and the owners of the corporation are usually the board members and officers who also work for the corporation.

2. Publicly held corporations, in contrast, have shareholders who are part of the general public. Demand for corporation shares is much broader. There aren’t usually any share transfer restrictions. Shareholders are not exclusively board members and officers.

Federal tax laws indicate differences between types of corporations. The Internal Revenue Service (IRS) distinguishes between subchapter S and subchapter C corporations. A subchapter S corporation allows smaller businesses to practice “flow-through taxation” just like general partnerships. There are requirements for gaining subchapter s status such as having less than a certain amount of shareholders and limiting the class of stock to just one.

Profit Corporation Major Points

• Personal Liability of owners/shareholders is limited to amount of their investment. In other words, to the amount they invested in buying stock of the company.
• Ownership transfers easily in corporations. Some states don’t even require written notice (Deleware for instance).
• For profit corporations can exist in perpetuity regardless of death of members, officers and investors.
• Money can be quickly raised by selling stock and securities or through venture capitalists and traditional lending sources (banks).
• Management handles day to day corporate operations, investors need not be involved.
• A for profit corporation is an involved organization to operate. Required are annual meetings of the corporation’s shareholders and rather extensive record keeping.
• A for profit corporation receives double taxation. The corporation pays tax on income as it is earned, and the shareholders pay tax on income distributed to them as dividends.