Difference Between Corporate and Non-Corporate
The difference between corporate and non-corporate shareholders has to do with the entity that owns company stocks.3 min read
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.
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.
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.
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