Corporations

Corporations:

• The most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners.
• This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern.
• The shareholders of corporations have limited liability protection, and corporations have full discretion over the amount of profits they can distribute or retain.
• Corporations are incorporated businesses.
• Incorporation which is the process of becoming a corporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued (a condition known as limited liability).
• Corporations can be organized for profit or non-profit.
• Corporations are presumed to be for-profit entities, and as such they can have an unlimited number of years with losses.
• Corporations must have at least one shareholder. It is normally owned by multiple shareholders and is overseen by a board of directors, which hires the business’s managerial staff.
• In addition to privately-owned corporate models, there are state-owned corporate models.

The Incorporation process:
1. Selecting the company’s name.
2. Writing the articles of incorporation.
3. Paying fees and taxes.
4. Holding an organizational meeting.
5. Adopting bylaws, electing directors.

There are a few types of Corporations:
1. General Corporation.
2. Close Corporation.
3. S Corporation.

Advantages:

• Limited liability.
eg. Owners’ personal assets are protected from business debt and liability.
• Unlimited life.
eg. Corporations have unlimited life extending beyond the illness or death of the owners.
• Tax deductions.
eg. Tax free benefits such as travel, insurance, and retirement plan deductions.
• Ease of transferring ownership.
eg. Transfer of ownership facilitated by sale of stock.
• Change of ownership need not affect management.
• Abilty to attract financing.
• Easier to raise capital through sale of stocks and bonds.

Disadvantages:

• Double taxation on profit.
• Cost and complexity of formation.
• Termination difficulty.
• Stockholder and Board Conflict.
• More government restrictions, such as state and federal rules and regulations.

1. General Corporation:
   
   • This is the most common corporate structure.
   • The corporation is a separate legal entity that is owned by stockholder.
   • A general corporation may have an unlimited number of stockholders that, due to the separate legal nature of the corporation, are protected from the creditors of the business.
   • Consequently, it is usually chosen by those companies planning to have large public stock offerings.
   • A stockholder’s personal liability is usually limited to the amount of investment in the corporation and no more.
2. Close Corporation:
   
   • There are a few minor, but significant differences between general corporations and close corporations.
   • In most states, close corporations are limited to 30 to 50 stockholders.
   • Not all states recognize close corporations.
   • In addition, many close corporation statutes require that the directors of a close corporation must first offer the shares to existing stockholders before selling to new shareholders.
   • This type of corporation is particularly well suited for a group of individuals who will own the corporation with some members actively involved in the management and other members only involved on a limited or indirect level.
   • Is the most appropriate for the individual starting a company alone or with a small number of people.
3. S Corporation:
   
   • One of the highly desirable entity for corporate tax purposes.
   • It is a special tax designation applied for and granted by the Internal Revenue Service (IRS) to corporations that have already been formed.
   • Many entrepreneurs and small business owners are partial to the S Corporation because it combines many of the advantages of a sole proprietorship, partnership and the corporate forms of business structure.
   • S Corporation avoid “double taxation” (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the shareholders.
   • S Corporation shareholders are exempt from personal liability for business debt.

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