What is a Non Corporate Entity: Everything You Need to Know
Corporations are considered legal people. Non-corporation companies, such as a partnerships or sole proprietorships have no legal distinction from the owners. 3 min read
2. Entity Comparison
A non-corporate entity is a legal entity that does not go through the incorporation process. Shareholders posses certain responsibilities and rights that owners of other legal entities do not have. A corporation can do the following:
- Enter into agreements
- Borrow and loan money
- Sue or be sued
- Own assets
- Pay taxes
- Hire employees
Corporations are considered legal people. Non-corporation companies, such as a partnerships or sole proprietorships have no legal distinction from the owners. This means that owners of such entities do not have the same legal protections as a corporate entity. However, starting a non-corporate entity is easier than a corporate entity, and registering a corporation comes with certain responsibilities. Moreover, corporations may be expensive to create, but this would depend on the state you live in. Further, corporate registration requires additional paperwork to register.
Corporations hold three primary offices:
Shareholders comprise owners of the company, and they could act as officers or directors of the company. Each corporation should have a minimum of one director, allocate resources where necessary, and manage the business itself. Directors hold responsibility in choosing the officer who manages the daily affairs of the business. Non-corporations do not have a certain structure.
The raising of capital is harder for non-corporations when compared to incorporated entities. Corporations can raise capital through the selling of stock to the public. Corporations can also use such proceeds generated from stock sales to grow the company or pay debt obligations. A non-corporation can rely on an owner investment to provide financing to the company’s business activities. If a non-corporate owner does not have suitable credit, that person may not secure loans to finance the operation of the business.
Corporations deal with more regulations and face state guidelines when compared to non-corporate entities. In addition, corporations must have a minimum of one annual meeting, where no meetings are required under non-corporate entities. Corporations should record meeting minutes and submit yearly reports with every state where transactions occur. Non-corporations are not required to file reports or keep meeting minutes with state officials.
It’s worth noting that states such as California and Delaware levy franchise taxes on corporations, but a partnership or sole proprietorship does not have to pay franchise taxes. Non-corporations do not have to submit financial statements, but corporations must submit the following:
- Balance sheets
- Income statements
- Cashflow statements
Corporations differ from non-corporations when it comes to continuity. A corporation lasts forever, regardless of what happens to owners. This is not the case with LLCs or sole proprietorships, where the entity dissolves if a member exits or dies. However, a corporation is fully functional even as leadership roles change. When it comes to accountability, corporations provide more protections to owners. For instance, if a partnership gets into debt, the partners must pay for any business debt obligations from personal assets.
On the other hand, business debt obligations are separate from the owners, and creditors cannot petition for the personal assets of the shareholders. Such protections also extend to LLCs. This also means that owners can participate regarding the division of profits and receive dividends. Non-corporate entities do not have such a structure, even such entities as LLCs are flexible enough to tailor the internal management structure in the same manner as a corporation.
Corporations are registered entities that are useful through all kinds of operations. While the precise legal status tends to vary based on jurisdiction, the most vital aspect of a business is in regards to liability. Such businesses as Toyota Motor Corporation, Microsoft Corporation, and The Coca-Cola Company are also registered corporations. Some businesses operate under other names. For instance, Google also operates under Alphabet, Inc. With that, most companies are created with the goal of providing for shareholders. Shareholders own a piece of the corporation and are responsible for payment of shares to the company treasury.
Overall, the corporation is created when a group of owners convene and retain stock. A corporation’s sole objective is in pursuit of profit, or charities, in the case of a non-profit corporation.
To learn more about a non-corporate entity, you can post your need, or post your job on UpCounsel’s website. UpCounsel’s lawyers have graduated from some of the top law schools in the nation, and will help you during the legal entity registration process. Moreover, they will defend your rights in court if you encounter any legal issues.