Starting a business in Michigan is an exciting time for people who have a product or idea they want to sell or a goal they want to achieve. Often, people who are starting a business may be overwhelmed by all the legal requirements to ensure they are in full compliance and do not face the ramifications of mistakes they might make. A corporation is essentially a group that is functioning as one entity. There are different types of corporations that can be formed and the one chosen must be applicable to the specific business. It is imperative to understand these categories.
The different corporations available
The following are the options that can be used when starting a corporation: profit corporations; nonprofit corporations; professional service corporations; and ecclesiastical corporations. A profit corporation is, as the name implies, designed to generate profit for those who hold a stake in the company as shareholders. There are shareholders, directors and officers. The directors are elected by the owning shareholders and will oversee the company while the officers will handle the company daily.
With nonprofits, there is the same structure as the for-profit corporation except there are no shareholders and there is no profit sought other than the compensation that the people involved with the company will receive for their services. The objective is to advance the purpose for which it was formed. Examples are a foundation, a school or museums. There can be stocks and shares in the nonprofit, but this must be stated beforehand.
Professional service corporations are for licensed professionals who can legally provide the service for which it was intended like doctors, attorneys, engineers and accountants. The shareholders are required to be licensed in that endeavor. Finally, ecclesiastical corporations are for religious purposes. This is also a nonprofit and must be established and recognized as such.
Business formation requires legal assistance
Understanding the different corporation types available is a fundamental aspect of forming a business. Not knowing these critical factors can result in mistakes that can cost time and money. For example, people might use the wrong information when filing; choose a name that they cannot use or has words that are not allowed; or states it is for a purpose that is not permitted. Businesses may fail or not get off the ground for missteps with the incorporation process. When starting a corporation, having legal advice from a firm experienced in business formation and planning is vital for these basic purposes and for more complicated issues.