For-profit corporation

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A for-profit corporation is an organization which aims to earn profit through its operations and is concerned with its own interests, rather than the interests of the public (non-profit corporation). [1]

Contents

Structure

A for-profit corporation is usually an organization operating in the private sector which sets aims that eventually help the organization itself. This kind of a company makes shares of ownership available to the general public. The purchasers of those shares then become the company's shareholders; shareholders have bought a portion of ownership of the corporation by giving away certain amount of money (differentiating from company to company) or assets of a particular value. Such organizations are usually not aided by the government as they are working for private financial gains, unlike a non-profit organization, which exists to serve a mission. The nature of a for-profit corporation is such that it is required to pay applicable taxes and register with the state. Any donation which they receive will also be subject to the tax policies of the concerned country. [2] As these organizations are all corporations and have a separate identity from their owners the owners are not in their personal capacity required to satisfy any debts which the company might owe to anyone. [3]

Aims

Unlike non-profit organizations the policies of these organizations are usually profit oriented. Managers (corporate employees) here have a profit oriented mindset and aim at maximising the revenue of the firm which in turn contributes to the dividends (in case of public limited) or profits of the shareholders/owners. [4] Their aim can be accompanied by a goal of serving the society however that usually happens in cases of B-corporations.

A for-profit corporation generally does mean an organization seeking profit however it has both modern forms and is also close to some other types of organizations as seen below.

Benefit corporations

A modern form of profit corporations exists in the form of a "benefit corporations." A number of for-profit corporations have opted to change their corporate form to this one. Many new corporations have been incorporating as benefit corporations. A benefit corporation aims to gain profit but also has a social mission that may have to do with protecting the environment or pursuing social justice initiatives. [5] They are accepted as legal entities in several states of the United States and legislations have been passed to ensure their legal status. [6]

Proximity to LLCs

A for-profit corporation can also be seen in context of a limited liability company as both of them have a very similar function. Both of them are common in a way as stakeholders in a for-profit corporation are called shareholders whereas a person who has stakes in a Limited Liability Company is referred to as a member. Subsequently, while corporations have a very defined hierarchy from corporate employees to board members. [7]

Advantages

To the economy

As these organizations aim to maximise profit they can be very healthy in an economy as the more they earn the greater is the amount they pay in taxes. That tax is eventually spent back on the people. Such corporations have the capacity to grow at a very fast rate and this eventually leads them to employing more people (lowering the employment burden on the government). Their profit maximisation motive also means that they will work on their productivity and will contribute to the GDP of any country they are living in. A higher GDP often leads to a higher living standard.

To the business

As the corporation only works for its own interest it gets the opportunity to isolate itself from all worldly matters and do what is best for itself. Here the grip of the owners can also be greater on the business as they have the free choice of making investments and decisions which will generate the greatest revenue for their business. Here they would not be obliged to consider any outer factor(welfare) while designing policies. More profit also means that they can invest the profit back to the business and increase its speed of growth.

Difference between profit and not-for-profit

The major distinction between these two organizations can be derived from their names as a non-profit organization does not seek any profit, does not pay any taxes as it works for the welfare of the society and reinvests any surpluses earned back to the business. [8] In contrast a for-profit corporation has no legal duty/obligation of working for the welfare of anyone but itself. This is the reason why a for-profit organization is not exempted any tax. Subsequently, at times running a not-for-profit corporation can be more difficult. Although both for and not-for-profit need a good decision making body however the aspect of serving the public puts an extra responsibility on the members of the board. [9]

All for profit corporations in the United Kingdom fall under the jurisdiction of the Corporation Tax Act 2009. [10] These companies are considered to be active for corporation tax purposes. This includes these corporations as they are trading or offering services(charged) to others, investing and are also dealing with the inflow and outflow of income. [11] Similarly the owners can also not be taken to the courts for some wrong committed by the company. The company can be represented by a lawyer in a court of law. However, like any other corporation, it can not represent itself in a court. [12]

Related Research Articles

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<span class="mw-page-title-main">Dividend</span> Payment made by a corporation to its shareholders, usually as a distribution of profits

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<span class="mw-page-title-main">Nonprofit organization</span> Organization operated for a collective benefit

A nonprofit organization (NPO) or non-profit organization, also known as a non-business entity, or nonprofit institution, and often referred to simply as a non-profit, is a legal entity organized and operated for a collective, public or social benefit, as opposed to an entity that operates as a business aiming to generate a profit for its owners. A nonprofit is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization's purpose, not taken by private parties. An array of organizations are nonprofit, including some political organizations, schools, business associations, churches, social clubs, and consumer cooperatives. Nonprofit entities may seek approval from governments to be tax-exempt, and some may also qualify to receive tax-deductible contributions, but an entity may incorporate as a nonprofit entity without having tax-exempt status.

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<span class="mw-page-title-main">Limited liability company</span> US form of a private limited company

A limited liability company is the United States-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not a corporation under the laws of every state; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well known for the flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under certain circumstances, LLCs may be organized as not-for-profit. In certain U.S. states, businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a similar entity called a professional limited liability company (PLLC).

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<span class="mw-page-title-main">Charitable organization</span> Nonprofit organization with charitable purpose

A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being.

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<span class="mw-page-title-main">Articles of association</span> Constitution of a corporation

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A nonprofit corporation is any legal entity which has been incorporated under the law of its jurisdiction for purposes other than making profits for its owners or shareholders. Depending on the laws of the jurisdiction, a nonprofit corporation may seek official recognition as such, and may be taxed differently from for-profit corporations, and treated differently in other ways.

A charitable for-profit entity is an organization that exists to serve a charitable mission but is legally organized as a for-profit corporation. Both benefit corporations and Low-profit limited liability companies (L3C) fall under this category. As well as generating a profit, a charitable for-profit entity concentrates on setting a social objective. The business must achieve its social purpose as well as have a profit income if it is to be successful. Lately, there are movements to refine strategies, retuning community-oriented activities based on ROI of Little Investment or Small Capital, Low Risk, yet, higher return and rebranding nonprofit entities from wholly-dependable funding beneficiary from Governments or public i.e. business organization or individual. previously, we often heard of Nonprofits and community-based organizations, now, For-profits community-based Social Enterprises The case of organizing charitable work under for-profit rules rather than as a traditional charity such as a foundation gained prominence when Google announced its Google.org branch in 2006. Since then, the subject has been under both academic and public debate with U.S. law professor Eric Posner arguing in favor of expanding Charity law to include for-profit charities, while Brian Galle considered the legislative popularity of social enterprises a "race to the bottom among states competing to siphon away federal tax dollars for local businesses."

<span class="mw-page-title-main">Benefit corporation</span> Type of for-profit entity

In business, and only in United States corporate law, a benefit corporation is a type of for-profit corporate entity whose goals include making a positive impact on society. Laws concerning conventional corporations typically do not define the "best interest of the corporation", which has led some to believe that increasing shareholder value is the only overarching or compelling interest of a corporation. Benefit corporations explicitly specify that profit is not their only goal. Their activities may or may not differ much from traditional corporations. An ordinary corporation may change to a benefit corporation merely by stating in its approved corporate bylaws that it is a benefit corporation.

References

  1. ↑ "Business Dictionary". Archived from the original on 2020-01-18. Retrieved 2014-10-24.
  2. ↑ Carter, Christophia. "For Profit vs Not-For-Profit Organization". Small Business. Chron. Retrieved 21 October 2014.
  3. ↑ "Corporation Types". Companies Incorporated. Retrieved 22 October 2014.[ permanent dead link ]
  4. ↑ "Management in Different Business Types: For profit, non-profit, and mutual benefit". Archived from the original on 2014-10-31. Retrieved 2014-10-24.
  5. ↑ Forester, Drake. "What is the Difference between a Nonprofit Organization and a Benefit Corporation?". score.org. Score. Retrieved 27 October 2014.
  6. ↑ Corporations, B. "About B Corps". B Corporation. Retrieved May 24, 2019.
  7. ↑ Carter, Christopher. "LLC vs. For Profit Corporations". smallbusiness.chron.com. Chron. Retrieved 29 October 2014.
  8. ↑ "NonProfit Organization". investopedia.com. Investopedia. Retrieved 28 October 2014.
  9. ↑ Rosenthal, Leslie (15 April 2012). "Nonprofit Corporate Governance: The Board's Role". Harvard Law Blog. The Harvard Law School Forum on Corporate Governance and Financial Regulation.
  10. ↑ "Corporation Tax Act 2009". www.parliament.uk/. Retrieved May 28, 2019.
  11. ↑ "Trading and non-trading for Corporation Tax explained". hmrc.gov.uk/. HM Revenue and Customs. Retrieved 30 October 2014.
  12. ↑ Booth, Beresford (8 July 2011). "Corporations Cannot Represent Themselves In Court". beresforlaw.com. Retrieved 30 October 2014.
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