Key Takeaways:

  • Corporate shareholders are typically other corporations, with larger capital to buy more shares and influence governance decisions.
  • Non-corporate shareholders often include individuals or partnerships, who may not have significant voting power due to smaller shareholdings.
  • Taxation differs between corporate and non-corporate shareholders, with corporations benefiting from lower tax rates on dividends, while non-corporate entities may face double taxation on dividends.
  • Corporate vs. Company structure varies, with corporations managed by a board of directors, while companies can be member-managed or run by hired managers.
  • Legal protections apply to both entity types but may be limited in cases of fraud or other misconduct.

The difference between corporate and non-corporate shareholders has to do with the entity that owns company stocks. Corporate shareholders are corporations that have purchased another corporation's stock, whereas non-corporate shareholders are usually individuals that have purchased a corporation's stock. Partnerships can also be non-corporate shareholders.

Corporate and Non-Corporate Shareholder Differences

In theory, the difference between corporate and non-corporate shareholders should be easy to understand. In practice, whether shareholders are corporate or non-corporate entities can have a big impact on:

  • The taxes the corporation pays.
  • How the corporation is governed.
  • How legal situations are handled.

One of the primary differences between corporate and non-corporate shareholders is how much stock each group can purchase. Corporations have much more money and resources than individual people, which means that corporate shareholders are able to buy much more stock in a company than individual investors. The amount of stocks that a shareholder owns directly translates to their voting power within the company, so a corporate shareholder that purchases a large amount of shares would hold more sway within a company than a non-corporate shareholder.

Another difference to consider is how involved each type of shareholder is in corporate governance. Corporate shareholders have usually made a big investment in a corporation, which means they will be more hands-on in governing the company. Generally, individual non-corporate shareholders do not play a major role in a corporation's governance.

Types of Non-Corporate Shareholders

Non-corporate shareholders encompass a range of entities beyond individual investors, including partnerships, limited liability companies (LLCs), trusts, and sometimes government entities or NGOs. Each type may have distinct legal and financial structures, which can influence how they engage with corporate governance and taxation. For example:

  • Individuals: Typically invest smaller amounts and hold limited voting power.
  • Partnerships and LLCs: Can provide a way for multiple individuals to invest collectively while still being treated as non-corporate shareholders.
  • Trusts and Estates: Often hold shares for specific beneficiaries, adding another layer of fiduciary responsibility and impacting shareholder rights.

This variety highlights that non-corporate shareholders bring diverse investment goals and governance expectations, which can impact a corporation’s strategy, particularly if there is a significant number of shares held by trusts or LLCs.

Finances and Taxes

In some cases, corporate shareholders may benefit non-corporate shareholders. For instance, if the corporate shareholders' participation in governing of the corporation results in a profit, the value of the company will rise, which benefits all shareholders. On the other hand, corporate shareholders may govern the company in a manner that only benefits large investors, which is a big drawback for non-corporate investors.

Imagine, for example, that a large corporate shareholder only wants to take dividends from the company instead of reinvesting any profits. While this would certainly benefit the corporate shareholder, it would damage the non-corporate shareholder, as the company would have less money to invest in expansion and other projects.

When forming a corporation, there are tax implications that you must consider. For instance, with an unincorporated business, business income is only taxed once — on the owner's personal return. On the other hand, with a corporation, income gets taxed two times. First, it gets taxed directly at the corporate level, and then any profits passed to shareholders will get taxed on their individual returns.

One of the tax advantages of corporations, however, is that the tax rate for dividend income is much lower than the normal income tax rate. This means that corporate shareholders can control their taxes by investing in companies that offer large dividends.

Impact of Corporate vs. Non-Corporate Shareholders on Company Strategy

The mix of corporate and non-corporate shareholders within a company can heavily influence its financial and operational strategies. Corporations that act as shareholders may have strategic interests, like integrating supply chains or creating strategic partnerships, that align with their broader corporate goals. This can lead to shifts in the company's priorities:

  • Revenue Allocation: Corporate shareholders may push for dividends or other revenue allocations to support their financial goals, impacting reinvestment potential for growth.
  • Governance Practices: Corporate shareholders often advocate for rigorous governance practices and may bring professional managers or advisors to ensure that the company operates efficiently and aligns with broader industry standards.

For non-corporate shareholders, especially individual investors, the focus might be more on share value appreciation and predictable dividend returns rather than strategic control or influence.

Is There a Difference Between a Company and a Corporation?

Corporations and companies have several similarities. For instance, both are business entities that are separate from their owners and have the same rights as a legal person. Forming both corporations and companies also requires a great deal of legal effort. Finally, both entities may own assets.

When choosing between a company and a corporation, the size of your business is the first thing that you need to consider. In general, small businesses should structure as a company, whereas larger business entities will benefit more from the corporate form. One difference between these two entity types is the title owners are given. If you are an owner in a company, you would be a member. On the other hand, corporation owners are known as shareholders.

How many people can own a company or a corporation is another difference between these business types. Companies can have a limited amount of members, but there is no limit to how many shareholders a corporation can have.

With both a company and a corporation, owners will enjoy limited liability protections. There are certain situations, however, where these protections will not apply to a company member. For instance, if a member commits fraud, their personal assets would be at risk during a lawsuit.

These entities also differ in how they are managed. If you form a corporation, a board of directors appointed by shareholders will manage your business. Companies can be managed directly by members, or the members can hire a professional manager to run the business.

Non-Corporate Entities and Corporate Law

Unlike corporations, non-corporate entities, such as sole proprietorships or partnerships, often operate with fewer regulatory requirements, which affects both liability and tax treatment. For instance:

  • Simpler Formation: Non-corporate entities, especially sole proprietorships, can often be created with minimal paperwork, while corporations must undergo a more extensive registration process.
  • Tax Differences: Non-corporate businesses may benefit from pass-through taxation, where income is taxed only once, at the individual level. In contrast, corporations face double taxation — first at the corporate level and then on dividends.
  • Liability Protections: Limited liability protection applies differently. Corporate shareholders are protected from liability beyond their investment in stock, while non-corporate owners may be personally liable for business debts, depending on the structure of their entity (e.g., LLC vs. partnership).

These factors make non-corporate entities appealing for small businesses or partnerships that want flexibility without the regulatory burden of a corporation.

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