Definition of A Corporation

Corporation What Is It ? / Definition

A business may incorporate without an attorney, but legal advice is highly recommended. The corporate structure is usually the most complex and more costly to organize than the other two business formations. Control depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors' meetings and annual stockholders' meetings. Records must be kept to document decisions made by the board of directors. Small, closely held corporations can operate more informally, but record-keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved. You may want to incorporate as a "C" or "S" corporation.

What Is A Corporation? / Definition of the Word Corporation.

A corporation is a legal entity that is separate from its owners, the shareholders. It
is formed by filing certain documents with the Secretary of State and taking other
actions required by the Code. A corporation may have perpetual existence, meaning
that it continues to exist regardless of the status of the individual shareholders.

Control

A corporation is composed of three different "players": the shareholders, directors and
officers. It is critical to understand that these players have different responsibilities,
obligations and authorities. The shareholders own the corporation and elect the directors.
The directors govern the general affairs of the corporation and appoint officers
who conduct the day to day business of the corporation. It is typical in smaller corporations
for an individual to hold two or three "player" positions. In fact, one person
can be the sole shareholder, director and officer.

Liability

Limited liability is the most important reason to incorporate. The debts incurred by
the corporation cannot generally be collected from the officers, directors or shareholders
of the corporation. This allows one to protect his or her personal assets from
the debts and obligations of the corporation. However, oftentimes shareholders are
called upon to guaranty payment of the debts of the corporation. It is important to
keep personal and business dealings separate from the corporation's business in order
to ensure that one cannot be personally liable for obligations of the corporation.

Taxation

"For profit" corporations (other than S corporations, which are discussed below) are
subject to what is know as "double taxation." This means that the corporation pays
tax on the income earned by the corporation and its shareholders pay tax on dividends
received from the corporation. An S corporation is not subject to double taxation.
Rather, for tax purposes, it is known as a "pass-through" entity (as is a partnership).
The term "pass-through" means that there is no tax on the corporation, but
that the income and losses of the S corporation are passed through to the shareholders
in proportion to their ownership interests whether or not they record a distribution.
A corporation can be an S corporation merely by meeting certain eligibility requirements
and making a special election with the IRS. These eligibility requirements
include having no more than 75 shareholders who must be individuals or certain
trusts or estates. Further, the shareholders may not be non-resident aliens and the S
corporation can only have one class of stock. From a legal standpoint, an S corporation
is no different than any other corporation. It is organized and operated like other
corporations and has all of the characteristics of a corporation described above. From
a tax perspective, however, they are very different. A tax professional should be consulted
to determine whether the shareholders will benefit from causing a corporation
to make an S election.

Administrative

The corporate form of doing business does have some disadvantages. Sine the corporation
is a separate entity, it must file tax returns and pay taxes on its income. A
corporation must maintain certain records in order to ensure that its corporate status
is maintained. This means additional accounting and legal costs associated with
using the corporate form of doing business.

What Is A Corporation?

A corporation is a separate legal entity that exists under the authority granted by state law. A corporation has substantially all of the legal rights of an individual and is responsible for its own debts .It must also file income tax returns and pay taxes on income it derives from its operations. Typically, the owners or shareholders of a corporation are protected from the liabilities of the business. However, when a corporation is small, creditors often require personal guarantees of the principal owners before extending credit. The legal protection afforded the owners of a corporation can far outweigh the additional expense of starting and administering a corporation.