A Corporation is a legally created entity, which unlike a sole proprietorship or partnership, has rights, duties, powers, responsibilities, and unlimited life in and of itself.

A Corporation enjoys most of the rights and responsibilities that an individual possesses.

It has shareholders who elect a board of Directors who in turn appoint Officers such as President, Vice President, Secretary, and Treasurer. They are responsible for the operation of the company. A Corporation is governed by a set of Bi-laws and the Articles of Incorporation, which are filed with and approved by the Secretary of State of the corporations domicile.

A corporation may engage in most business activities except those that are specifically prohibited by law. These include practicing one of the licensed professions, such as law or medicine, and – in most states – businesses such as banking or insurance.

The chief advantage of a corporation is that it limits your liability as an individual. Ownership of property, incurrence of debt, and the performance of services and sales of goods are the responsibility of the corporation, rather than the individuals in the corporation. (This is a function of what is called, the “corporate veil” This means that since a corporation cannot act except through individuals, your actions on behalf of a corporation are usually attributable to the corporation and not to you as an individual.)

To form a corporation, you sell shares (to yourself and others.) These shares make up the capital of the corporation, and the shareholders become the owners of the corporation. A corporation must have a written set of by-laws governing, among other things, how decisions will be made, and how distributions will be determined. A corporation must also elect officers and establish the duties and responsibilities of these officers. It must also hold annual meetings of its shareholders and observe certain corporate formalities. One such formality is the taking of “minutes” of each meeting. Minutes are a written account of what transpired at a meeting. The Secretary of the Corporation takes the minutes of the meeting. All meetings of the Board of Directors and Shareholders are written into the min­utes. Shareholders are the actual owners of corporations.

As owners, shareholders are entitled to a share of the profits according to their number of shares, but are not responsible for the debts or liabilities of the corporation itself. Shareholder liability is limited to the loss of the shareholder’s investment, except in a case where a shareholder has accepted additional responsibility such as guaranteeing a loan.

The chief disadvantages of using the corporate form are the legal costs you incur when you incorporate and the ongoing costs of meeting all the legal and tax requirements of a corporation. Both state and federal governments carefully scrutinize corporations and laws governing them can be quite complicated. In addition, corporations are taxed as separate entities, usually at a higher rate than individuals. This means the corporation pays taxes on what it earns, and you pay taxes on what you take out of the corporation in distributions.

Despite these disadvantages, however, the limitation of liability – the original reason for creation of the corporate entity – is a powerful consideration in the formation of any new business. When you consider that, plus the additional advantage of being able to sell more shares and thereby raise additional funds for your company, the corporate form may be your best bet for the long term.

The American Dream by CK Quarterman