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How to Choose the Right Corporate Structure in USA?

The selection of an appropriate corporate structure is crucial for companies. Corporate structures are basically departments or teams that are an integral part of a company. Individuals are divided into groups or sections and these sections are called corporate structures in USA of a company. Marketing, sales, finance, etc. are departments that are present in a company. Different companies have different corporate structures depending on the company’s objective or goal. In this article, we will talk about some important elements of corporate structures.

What are the features of a corporate structure?

Below mentioned are some important elements of corporate structures in United States –

  • The most common corporate structure in the United States consists of a team of board of directors and the management team.
  • Boards of directors often include inside directors, who engage in the day-to-day activities of the company, and outside directors, who are allowed to make unbiased judgments.
  • The senior-most in the management team consists of least a Chief Executive Officer (CEO), a Chief Financial Officer (CFO), and a Chief Operations Officer (COO).
  • Shareholders, the board of directors, and officers have the majority of the control and involvement in the corporate structure of a company.

Understanding the basics of corporate structure

The goal of any organization or corporation is to ensure that the interests of shareholders’ are fulfilled. Shareholders are the owners of the company, thus, the board members must pay attention to their interests and work towards achieving their goals.

Board of Directors

The members of the team of board of directors are elected by the shareholders of the company. They are categorized into three types – chairman, inside directors, and outside directors.

Chairman

A chairman has many responsibilities during his duration with a company. Prepare various business strategies, effectively communicating with all the top executives and members of the company, ensure strategies are initiated in a pre-defined manner are certain duties of a chairman.

Inside Directors

These directors are responsible for approving budgets that are of high level which are prepared by higher management. The implementation and supervision of the strategies is also an essential duty of the inside directors.

Outside Directors

The outside directors help the inside directors by providing their opinion on the strategies and plans prepared by the directors. The only difference is that these directors are not a part of the management team.

Management team

The management team consists of individuals who take part in the everyday business activities of an organization. Three important positions at the management level are –

Chief Executive Officer (CEO)

The CEO of a company is the senior-most decision-maker. He/she takes the most important decisions with regard to business operations, investment, etc. CEO reports to the board of directors.

Chief Operating Officer (COO)

The individual who is hired as a COO looks after the company’s marketing, sales, personal, and production. He is responsible to ensure that the day to day activities of the business are executed in an efficient and effective manner.

Chief Financial Officer (CFO)

The financial aspects of the business are looked after by the individual appointed as a chief financial officer. From making major financial decisions to preparing budgets, CFO has control of the finances of a company. he provides all details to the board of directors. The financial position of a corporation is the responsibility of a CFO.

How to Choose the Right Corporate Structure in USA?

Selecting a corporate structure is a long process. Understanding every step and taking a decision after appropriate research is important for individuals. A company can be started by an individual, 2 individuals, or a group of individuals. They must take into consideration all aspects of every option available to them.

Some options through which a business can be established are as follows –

Sole Proprietorships

One of the most simple and common types of corporate structure, sole proprietorships involve only one member who takes all the decisions of the company.

Partnership firms

A company established with two individuals as partners is known as a partnership firm. These firms are categorized into three types – general partnerships, Limited Liability Partnerships, and joint ventures.

Limited Liability Companies

Limited Liability Companies are flexible and have many benefits. An LLC is one of the most common types of corporations in the USA. The two types of LLCs are Limited Liability Company and Professional Limited Liability Company.

Corporations

Corporations can be started in three ways, C corporations, S Corporations, and closed Corporations

In a C corporation, shareholders are allowed to exchange property, money for the capital stock of the company. This type of corporation is a separate taxpaying authority.

corporate structure in USA

Non-Profit Organizations

Non Profit Corporations, which are also known as non-business entities, not for profit organizations or nonprofit organizations are establishments formed for a specific purpose.

Common types of corporations in the United States

In this section, we will try to understand the features of the two most common types of corporations that are established in US.

Common types of business corporations/entities that are established in the US are –

Corporations

Tax status

When a corporation is formed, it receives the status of a “C” corporation. Thus, the company has to follow rules as per guidelines mentioned for “C” Corporations.

Liability

The liability of the corporate members is limited to the amount of capital they agree to bring into the company.

Limited Liability Companies (LLC)

Tax status

LLCs provide several options to the individuals. It can be started as a sole proprietorship, partnership, S corporation, or C corporation. Tax rules are different for different company types. For instance, in the case of a sole proprietorship, tax rules do not apply to the company.

Liability

An LLC can be converted into any type of company by following certain conditions are followed in a proper manner. The liability of the LLC depends on the company type. In the case of a sole proprietorship, the liability will be unlimited.

Corporation Limited Liability Company (LLC)
Tax status “C” Corporation One Member Sole Proprietorship, Two or More Members Partnership

 

Liability Limited liability Unlimited liability
Laws Corporation law Limited liability Company law
Real estate ownership Corporation ownership LLC ownership
Ownership transfer Transfer of corporation ownership Transfer of LLC ownership

Conclusion

Choosing the right corporate structure in USA requires a lot of effort, time, and energy. It is significant to choose a structure that well defines the core and nature of the business. Different business types have different requirements and to fulfill the conditions of several individuals involved in the business, the selection of a corporate structure is crucial.

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