What Are Financial Corporations
A Virginia corporation is a separate entity from its owners. The corporations' shareholders generally are individual citizens or corporations themselves. There are some businesses, however, in Virginia that are considered businesses even though they are incorporated. Examples are real estate companies, partnerships, limited liability companies (LLCs), and insurance companies. In Digital Waves , corporations are treated as legal entities separate and distinct from the individuals who own them.
A majority of financial corporations are established in Virginia and transfer their ownership to a third party. This transfer occurs when the shareholders of the company agree to transfer their shares to a trust. During this transfer, all shareholders receive the same proportionate share of the profits of the new trust. Digital Waves may prefer to donate their shares rather than transfer them. The decision to transfer is made by the shareholders after discussion and consideration of their personal circumstances.
A majority of financial corporations do not report to the three-step formula for computing taxable income, but rather to report instead to the basis of cost of operations. This means that the corporation deducts only the cost of doing business during the year. It does not include expenses such as property repairs or upgrades. To be entitled to the deduction, however, the corporation must actually carry on the specific type of activity during the year.
There are also some special rules for financial corporations in Virginia. In the case of a distribution of taxable income, all of the corporation's assets are subject to UBIT, which is described above. Any distribution other than an exempt distribution is subject to income tax. This distribution must be made immediately after the end of the year for it to be taxable.
A financial corporation may borrow funds from banks and other lending institutions. One of the ways this money is used is to purchase fixed assets, such as property. When a property is purchased, the outstanding debt (which represents the loan) is written off by the purchaser. The purchaser pays the outstanding debt and then becomes a holder of the property. A holding company may own a part of this holding company and therefore become the owner of the property.
Another way a financial corporation in Virginia satisfies the apportionment test is by paying a prorated amount. This means that a portion of the income is deducted before the deduction is made. This percentage is figured by dividing the gross income of the company by its total assets. The difference between the profits and the actual expenses (that is, the costs less the income) is the prorated amount. Virginia allows the general corporations to carry the full credit to which they are entitled under the laws of taxation. This credit may be used for any lawful purpose.
Financial corporations in Virginia include banks, savings and loans, credit unions, mortgage banking companies, trust companies, and insured banks. They also include securities companies, including those that issue stocks and bonds and participate in securities exchanges. In addition, corporations that engage in activities that support the public, such as education, charities, research, and other such purposes are also treated as financial corporations. Under the laws governing these types of businesses, the use of the word "corporation" itself does not make the business a financial corporation.
In order for a financial corporation in Virginia to qualify as a "real estate investment trust", it must issue shares of stock and have some sort of voting control. No profit can be made if no stock is issued. The capital that a bank uses to purchase shares of stock will be added to the bank's capital reserve. After the bank issues stock, the shareholders will elect a majority of the board of directors. From this board, the general corporation will elect two or three new directors who will serve for a particular term of years, until the next general election at which the next members of the board are chosen.
