Some entrepreneurs in Louisiana may decide they want to establish a company in the state, and some of them may decide they want their business to be a corporation. However, under business law, there are various types of corporations to choose from. Thus, before making any decisions regarding corporations, it is important to know what your options are.
First, there are general corporations. These corporations are owned by an unlimited number of stockholders but are a separate entity for legal purposes. This means that stockholders are generally not personally liable for the debts of the company. Stockholders can sell their shares of the corporation, and, if the ownership of the corporation changes, the management of the corporation does not also have to change. However, general corporations must comply with various Louisiana and federal laws and regulations.
Second, there are close corporations. Generally, these corporations can have only 20 to 50 shareholders. Also, per state statutes, the directors of this type of corporation who want to sell stock to new shareholders must offer to sell these shares to existing shareholders before doing so. A close corporation may be attractive to enterprises where some shareholders want to manage the corporation, while other shareholders only want a limited involvement in the company.
Finally, there are S corporations. This entity has a special tax designation per the Internal Revenue Service. This type of entity avoids the double taxation that general corporations, close corporations and shareholders may be subjected to. Instead, any income or debts are only reported on the shareholders’ tax returns. However, like other corporations, shareholders in an S corporation are not personally liable for the corporation’s debts. Keep in mind there are numerous legal restrictions that S corporations must comply with, so not all businesses may qualify as S corporations.
This is only a very general overview of three types of corporations Louisiana entrepreneurs may choose from. In the end, deciding on a business entity can be complex because there are so many choices. Fortunately, business law professionals are available to explain one’s options, so that informed decisions can be made.