Corporations are the most common form of business organization. A corporation is its own legal entity, separate and apart from the people that created it. It is a recognized “legal person” that can enter contracts, pay taxes and incur liabilities, separate from its owners. If you have questions, please contact our office toll free at (888)-DoMyLLC (366-9552).
A corporation needs people that are going to initially invest their money in its creation and become shareholders based on their investment. A name needs to be chosen, a Board of Directors designated, and Articles of Incorporation need to be created and filed with the Secretary of State in which your corporation will be doing most of their business in, or the state with most tax advantages. Corporate accounts will need to be opened and all licenses, permits and insurance obtained. Please see the Corporations section for more in-depth information on forming a corporation.
Shareholders have a limited liability as they can only be liable to the extent of their investment in the shares. The corporation’s debts and liabilities are those of the corporation only; meaning that the personal assets of shareholders are protected and cannot be touched. Corporations also have an unlimited lifetime. Death of shareholders does not extinguish a corporation’s existence as shares can be transferred. A corporation can only end when its shareholders decides to dissolve it. This makes it attractive to investors as there is more stability and more likelihood of a return on investments.
Corporations differ from other business entities in that they are taxed on its own profits. Also, if a corporation has profits that are distributed to the shareholders, called dividends, it will be taxed twice – once at the corporate level and again at the shareholder level.
Loss to the corporation might be able to be deducted from tax liabilities. Also, the first $75,000 a corporation makes is taxed at a lower rate. Fringe benefits, such as health insurance can be set up for its employees, and that cost is tax deductible.
The board of directors is the governing body of a corporation. They are appointed by the shareholders. Sometimes a shareholder can also be a director. The board of directors is responsible for overseeing all acts of the corporation.
Stock shares will be issued to the initial stockholders, the corporation’s goals and visions will be formalized, and the tone will be set for future meetings. Meticulous record keeping is necessary, and all decisions and actions taken will be memorialized in a minute book. The board will also formally adopt the Articles of Incorporation and the bylaws.
Articles of Incorporation must be filed with the state in which you are incorporating in. They do not have to be long or complicated and generally only require the name and address of the corporation, its business purpose, registered agent information, number of shares, classes and value of each share and possibly the names and addresses of the initial directors. A filing fee will also need to be paid.
Bylaws must be created, but depending on the state, may not need to be filed. Bylaws are more detailed than the Articles of Incorporation as they set forth what the corporation’s operating standards will be. Bylaws go further in to corporate record keeping procedure, goals and reasons for the corporations business, and day to day responsibilities of each officer.