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Section 7.2

Section 7.2. Corporations. What is a corporation?. A corporation is a business that is registered by a state and operates apart from its owners. Ownership or equity in a corporation is represented by shares of stock. 3 Major Types of Corporations. C-Corporation Subchapter S Corporation

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Section 7.2

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  1. Section 7.2 Corporations

  2. What is a corporation? • A corporation is a business that is registered by a state and operates apart from its owners. • Ownership or equity in a corporation is represented by shares of stock

  3. 3 Major Types of Corporations • C-Corporation • Subchapter S Corporation • Nonprofit Corporation

  4. C-Corporation • An entity that pays taxes on earnings. • Shareholders pay taxes • It is the most common corporate form • Protects the entrepreneur from being sued for the actions and debts of the corporation. Examples: Adidas, American Airlines, Ford, Home Depot, Wal-Mart

  5. What are shareholders? • Shareholders are the owners of the corporation. • Make policy decisions

  6. Advantages to Incorporation • Status • Limited liability-liable only up to the amount of their individual investment • The ability to raise investment money • Perpetual existence • Employee benefits • Tax advantages- certain expenses can be deducted from their reportable income.

  7. Disadvantages to Incorporation • Expensive to set up • Taxed heavily Subject to double taxation: It pays taxes on profits, then stockholders pay taxes on dividends they receive from those earnings.

  8. Subchapter S Corporation • Corporation that is taxed like a partnership -Profits are taxed only once at the shareholder’s personal tax rate. • Is not a tax paying entity. • Can have no more than 100 shareholders who must be U.S. citizens. • Can have only one class of stock

  9. Nonprofit Corporation • A legal entity that makes money for reasons other than the owners’ profit. -Any profit must remain within the company and not be distributed to shareholders Example: AARP (The Association for the Advancement of Retired Persons) advocates for the well-being of older persons.

  10. Limited Liability Company • A company whose owners and managers enjoy limited liability and some tax benefits, but it avoids some restrictions associated with Subchapter S corporations. • Many law and medical firms form LLCs.

  11. Benefits to Forming an LLC • Simpler to set up than a corporation • Allows for the flexibility of a partnership structure. • Limited liability like a corporation • Not subject to double taxation. Profits are taxed personally, and shareholders are taxed only once. • No limitations on the number of members or their status

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