What is a Corporation? Frequently Asked Questions

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Always consult an attorney in your area.
What is a Corporation?

  • A corporation is a legal entity that is usually formed to create legal independence from the people who form the corporation.  When correctly managed and operated, the shareholders owning the corporation should have “limited liability” which means that if the business fails or is sued, creditors cannot pursue the shareholders for personal liability.  Therefore, the shareholders liability is limited to their investment.
  • A corporation is managed by its Officers and Board of Directors, who are elected by the shareholders
  • A corporation has perpetual life, meaning that the corporation can continue its operations beyond the lifetime of any of its shareholders
  • A corporation is subject to “double” taxation because the corporation pays taxes on its income.  In addition, the shareholders pay tax on any dividends or other income they receive from the corporation.  This can be avoided by electing to become a S-Corporation to receive pass-through tax treatment.  These tax issues should be addressed with a certified public accountant.
  • Corporations can be formed for approved non-profit purposes to avoid tax liability

Formalities to Set-Up

  • As an initial step, the corporation files Articles with the Secretary of State.  The Articles of Incorporation give a basic framework for how the corporation will be run, the time of business it can engage in and the amount of stock it is authorized to issue.
  • Contemporaneously or soon thereafter, the corporation prepares Bylaws which provide a more detailed set of procedures for meetings, shareholder rights and responsibilities and actions that can be taken by the Board of Directors and Officers.
  • The initial Board of Directors will be appointed either in the Articles of Incorporation or by the incorporator
  • Shares of the corporation should be issued

Maintaining Corporate Formalities

  • In order to maintain the corporation properly, many corporate formalities need to be adhered to, including:
    • Keeping corporate assets in separate accounts from personal assets, avoiding the commingling assets between the corporation and its stockholders, and maintaining minutes of annual meetings
    • Conducting regular meetings by the shareholders and Board of Directors and keeping proper record of the minutes of those meetings
    • Maintain records of the current shareholders and the stock certificates that have been issue
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