How to form a C-corporation for Sports and Recreation

Introduction

It’s not uncommon for recreational sports teams to form nonprofit organizations. Team owners can write off various expenses as business-related, and their membership dues are tax-deductible for their players. But if your team is for profit, it may be more suitable to form a C-corporation instead of a nonprofit corporation. Here’s what you need to know about forming a C-corporation that will help you manage your finances and ensure everyone on the team gets the most out of their investment in the activity or sport they love.

If you’re part of a recreational sports or activities group, it may be useful to form a C-corporation

A C-corporation is a for-profit entity that can be owned by individuals or other companies. It’s different from a nonprofit corporation because it can carry out many activities that would normally be prohibited under tax law.

For example, any money made from a C-corporation is taxed at the corporate level, which means that there may not be as much left over for your group to use on operating expenses. In order to keep more money in the company coffers and reduce taxes, you could elect S status instead of C status when filing your taxes. However, this may affect some of your independence as an organization if you need approval from the IRS before making major decisions about how funds are used or distributed.

Many teams and activities groups form nonprofit organizations, but this can be a more suitable business structure if your team is for profit

The C-corporation is a specialized corporation that has been formed under the laws of any state by filing articles of incorporation with their Secretary of State. A C-corporation is distinct from a regular corporation because it has publicly traded stock, allows for unlimited personal liability for owners, and must pay federal income taxes on profits (as well as other taxes).

A number of industries are from C corporations because they want to raise capital from investors or outside investors in order to grow their business faster than they could on their own. For example, an athletic shoe company may use this structure so that it can sell shares in the company to people who want to invest in its growth without having control over how the company operates day-to-day.

It is not subject to the same limitations

The most significant limitation is that you cannot pay dividends to shareholders. This means that the company can’t be financially profitable in the traditional sense of making money and then paying out profits to shareholders.

However, because you can sell shares of stock and make a profit, there are other ways your business can be successful in this form of organization. In addition, while C-corporations are taxed as corporations, they still enjoy many benefits:

You can make the most of your C-corporation’s tax advantages if you hold more than one class of stock

It’s important to note that there are different classes of stock you can issue when forming a C-corporation. Each class will have its own voting rights and dividend rights, among other things.

You may also want to consider the liquidation preferences of each class of stock, which is an amount paid out before dividends are distributed. If your company gets liquidated as a result of bankruptcy or some other cause, this is the amount that shareholders receive before any other creditors get paid back what they’re owed.

Finally, it’s worth considering whether or not you’d like to include conversion rights in your corporation’s charter documents. These determine how easy—or difficult—it is for shareholders to convert their shares into another type of security (such as bonds).

A C-corporation isn’t a nonprofit entity like other sports teams may be, but it is still an ideal business structure for many groups

Unlike S-corporations and partnerships, a C-corporation is not subject to the same limitations on its activities as a nonprofit corporation. In other words, you can do more with your C-corporation than you could if you were operating under any other type of structure. For example, if your organization has an annual budget in excess of $50 million or wants to raise money through stock offerings or issuances of debt securities (bonds), then it would be better off forming as a C-corporation instead of an S-Corporation or partnership.

Conclusion

As you can see, there are many benefits to forming a C-corporation. If your sports or recreation group is struggling with how to handle its finances and operations, this may be the right business structure for you.