An Introduction to Corporations
Various structures are available for a business. A business may be set up, owned and run as a sole proprietorship, a partnership (limited or general) or a corporation (regular, Subchapter S or limited liability).
Traditionally, the corporation was the form of business chosen to achieve protection of the owner’s personal assets from liability for debts of the business while providing a method of raising capital for the business by selling shares in the corporation. The corporation continues to be an effective method to achieve these objectives of the business although other forms of business such as limited liability companies and limited liability partnerships have also evolved into alternative vehicles for protecting personal assets of the business owner from liabilities for business debts.
Corporations are created by filing articles of corporation with a state government office. These offices often have information, forms, and other assistance to provide to incorporators. The forms will describe what information is required in order to obtain a certificate of incorporation from the state, including the name of the corporation, how long it will exist, the names of the incorporators, the name of a registered agent or person to whom legal notices can be sent, and the basic purposes of the corporation.
A board of directors (made up of one or more persons as required by a particular state’s law) must be appointed to meet and decide upon how the officers of the corporation will conduct the business. Corporate bylaws must be drafted and agreed upon by the board to govern when and how the board will meet and how the board will arrive at decisions affecting the corporation’s business.
The owners of the corporation must be issued stock in the corporation as evidence of their ownership. Officers and employees of the corporation then will conduct the day-to-day business of the company under the general direction of the board of directors. Annual meetings of the shareholders will be held at which directors will be elected, and at least annual meetings of the board of directors will be held. Minutes or summaries of decisions by the shareholders and the directors will be kept as proof of their actions.
Corporate bank accounts, tax returns, and accounting records should be maintained carefully to prove the separate existence of the corporation and to avoid any contention that the corporation is a fiction. Operating the corporation as a separate entity is important to protection of owners’ personal assets from liabilities that may arise from the corporation’s operations.
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