Corporation Definition

Characteristics of a Corporation

Written consents are actions approved in writing by directors or shareholders outside of meetings. The bylaws control the internal governance of the corporation. Limited Partnerships – This is a hybrid form of partnership that allows for a class of partner known as a limited partner. To register an assumed business name, an assumed business name application and a non-refundable $50 processing fee must be submitted to Business Registry. Before an assumed business name is filed, the name is checked for availability. The name must be distinguishable from other active names on Business Registry records. If the name is distinguishable and the application conforms to Oregon statute, Business Registry processes the document and returns an acknowledgment to the customer.

The chart below gives a broad overview of some of the more important aspects of the usual types of business entities formed in California. While the chart will provide the basics, it is vital to educate yourself as to the many other aspects of the entities before electing which one to utilize. As a corporation, the enterprise exists as a legal entity separate from its owners. Most importantly, this means that the owners cannot be held responsible for the debts of the corporation. It also means that the corporation can own assets, sue or be sued, and borrow money. The corporation is created by the incorporators , who raise capital, enter into contracts on behalf of the corporation to be formed, and prepare the articles of incorporation. The promoters are personally liable on the contracts they enter into before the corporation is formed.

How To Form An S Corporation

The controller usually reports to the treasurer of the corporation. The president/chief executive officer of the corporation is empowered by the bylaws to hire all necessary employees except those appointed by the board of directors. The liability of stockholders is limited to the amount each has invested in the corporation. Personal assets of stockholders are not available to creditors or lenders seeking payment of amounts owed by the corporation. Creditors are limited to corporate assets for satisfaction of their claims. The corporate assets will be sold and the proceeds will first go to creditors to pay off debt.

Unlike the partnership, where the key element is the individual, the essence of the limited liability company is the entity, requiring for its creation more formal requirements. 1 William D. Bagley & Phillip P. Whynott, The Limited Liability Company, §2.10, (2d ed. 2d rev. James Publishing, 1995). S corporations (S-corps) are similar to C-corps in that the owners have limited personal liability; however, they avoid the issue of double taxation. An S-corp is considered a pass-through entity, meaning its income, losses, credits, and deductions can be passed on to the shareholders to be reported and taxed on their individual tax returns instead of the company being taxed as a separate entity.

  • It must be stated in the articles of organization if the limited liability company is to be managed by managers.
  • A C-corp can raise capital by selling shares of stock, making this a common business entity type for large companies.
  • The owners of an LLC are called “members.” A member can be an individual, partnership, corporation, trust, and any other legal or commercial entity.
  • The charter is a contract between the state and the corporation.
  • They leave this task to their representatives – the Board of Directors.
  • Advantages of an offshore corporation include not only lenient tax laws but also a great deal of privacy as well as certain legal protections.

Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes—for example a US LLC doing business outside the US or as a resident of a foreign jurisdiction. This is very likely where the country does not recognize LLCs as an authorized form of business entity in that country. Some examples of businesses include Cocoa Cola and Walmart, as well as smaller private businesses such as an accounting firm or a local grocery store. As Pride, Hughes and Kapoor note, businesses are comprised of individuals working together in an organized way in order to be successful. Businesses are organized around the resources needed to be successful, as well as the type of business that is being operated.

Business Characteristics & Examples

The bylaws may contain any provisions that do not conflict with the articles of incorporation or the law of the state. First, they face possible liability on contracts made on behalf of the business before it is incorporated. For example, suppose Bob is acting as promoter of the proposed BCT Bookstore, Inc. On September 15, he enters into a contract with Computogram Products to purchase computer equipment for the corporation to be formed.

Publicly held companies with stock traded on exchanges are required to file their financial statements and additional informative disclosures with the Securities and Exchange Commission. Certain industries, such as banks, financial institutions, and gaming, are also subject to regulations from other governmental agencies. The corporation is considered a separate legal entity, conducting business in its own name. Therefore, corporations may own property, enter into binding contracts, borrow money, sue and be sued, and pay taxes. Stockholders are agents for the corporation only if they are also employees or designated as agents. Some legal scholars argue that corporate income taxes are intended to limit the power of corporations and to offset the legal benefits corporations enjoy, such as limited liability for their investors. There is concern that LLCs, by combining limited liability with no entity-level taxation, could contribute to excessive risk-taking and harm to third parties.

The general partners control the business and are liable for debts and obligations of the partnership. A limited partner is similar to a shareholder in a corporation, because that person’s liability is generally limited to the amount of these contributions to the partnership. A limited liability company must have a registered agent in Oregon whose street address is the registered office. When a limited liability company is sued, the legal papers are served on the registered agent. Thus, it is necessary that the registered office have a street address. Since most corporations sell ownership through publicly traded stock, they can easily raise funds by selling stock.

Financial Accounting Ch 13 Part 1 Characteristics Of A Corporation

The business entity carries on business activity on its own behalf. The owners of the business entity are representatives of the entity. Business entities benefit society by allowing individuals to aggregate their resources and efforts in furtherance of a business activity. The legal entity is essentially a bundle of contracts that provides for the rights and duties of the owners and employees of the business entity.

Some business entities require a formal filing process through the state secretary of states office. This requires the filing of documents of organization in accordance with the procedural rules adopted by the state of organization.

Characteristics of a Corporation

A person must be properly authorized to use the seal, which shall sign his name, and also put the name of the place and the fact that he has been authorized to do so by the specified resolution. Transferability of Shares – The Capital of the Company is divided into parts, called shares. These shares are freely transferable subject to certain conditions. A company is not a citizen and therefore cannot enjoy the fundamental rights like right to vote which are available to citizens only. Can sue and be sued – A company like any other person can sue a third party and be sued. Continued existence – A company has a life of its own distinct from the life of its members. So the death of a member will not affect the life of the company.

Financial Accounting

After appellee, the Attorney General of Massachusetts, informed appellants that he intended to enforce § 8 against them, they brought this action seeking to have the statute declared unconstitutional. Choosing the particular venue in which to incorporate is the first critical decision to be made after deciding to incorporate. Some corporations, though headquartered in the United States, choose to incorporate offshore to take advantage of lenient taxation laws. Advantages of an offshore corporation include not only lenient tax laws but also a great deal of privacy as well as certain legal protections. For example, the names of the officers and directors can be excluded from documents filed.

Characteristics of a Corporation

Unlike flow-through profits, payment of dividends is generally a decision by the board of directors and does not represent all profits of the corporation. That is, the corporation determines the amount of any dividends paid to shareholders and may retain any percentage of profits within the corporation. A corporation is a legal person with the characteristics of limited liability, centralization of management, perpetual duration, and ease of transferability of ownership interests. Choosing the best management structure for your corporation is a decision you make with the advice of an attorney. The partnership is a conduit for income and is not taxed as a separate entity. Individual partners are taxed, and although limited by the 1986 Tax Reform Act, they can deduct partnership losses.

The amount of information and type of document required will vary between states and depend on the type of entity. The general requirements for each business entity type are discussed along with that business entity. General Partnerships – The general partnership is the most basic type of business entity.

Learn About The Benefits And Drawbacks Of Becoming A Corporation To Decide If Incorporating Is Right For You

C corporations, on the other hand, may have several types of stock. Unless the partnership agreement provides otherwise, all partners have equal rights in the management of the partnership.

A corporation is managed by a board of directors, which is elected by the shareholders. UpCounsel is an interactive online service that makes it faster and easier for businesses to find and hire legal help solely based on their preferences. We are not a law firm, do not provide any legal services, legal advice or “lawyer referral services” and do not provide or participate in any legal representation. In order toqualify for S corp status, a company must first be a corporation. If the company is a corporation, it must file IRS Form 2553 to elect Subchapter S status by the 15th day of the third month of its tax year.

The Corporate Charter

In a corporation, through a sale of stock, is much easier; but for the stock of a small corporation, there might not be a market or there might be contractual restrictions on transfer. Following World War II, most states revised their general corporation laws. A significant development for states was the preparation of the Model Business Corporation Act by the American Bar Association’s Committee on Corporate Laws. About half of the states have adopted all or major portions of the act. The 2005 version of this act, the Revised Model Business Corporation Act , will be referred to throughout our discussion of corporation law. —from engaging in what it considered the local, and not interstate, business of issuing insurance policies. The inference made by many was that states could not bar foreign corporations engaged in interstate business from their borders.

An LLC is formed by filing articles of organization (Form LLC-1) with the Secretary of State (filing fee $70). Within 90 days after filing the articles, the LLC must file a Statement of Information with the Secretary of State.

If the “S” corporation is not a calendar-year taxpayer, the election must be made within 75 days of the beginning of the corporation’s tax year. An S Corporation is simply a C Corporation that files IRS form 2553 to elect a special tax status with the IRS.

If a shareholder is also an employee, she will receive a salary for her services and dividends pursuant to her status as a shareholder. Employees of the corporation, Characteristics of a Corporation including officers and directors, receive a salary for their services. As previously discussed, dividends are taxed at a more favorable rate than ordinary income.

What Are The Advantages And Disadvantages Of Incorporation?

An internal claim is a demand for payment that can be brought against a company but not against the owners of the company. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Investopedia does not include all offers available in the marketplace. The shareholders of a corporation typically receive one vote per share. A corporation may be created by an individual or a group of people with a shared goal. Since I.B.M. is estopped to deny the corporate existence of the Bureau, we hold that Cranson was not liable for the balance due on account of the typewriters. It is understood by the parties hereto that it is the intention of the Purchaser to incorporate.

Most corporations (like C-corps) face double taxation, which means that the business income is taxed at the entity level as well as the shareholder level . S-corps eliminate this problem by only taxing each shareholder on their individual income, not at the entity level. However, the IRS has been known to pay closer attention to S-corps and even tax them as C-corps if their records fail to meet the legal requirements. Although some corporations are subject to double taxation, other corporation structures have tax benefits, depending on how their income is distributed. For example, S corporations have the luxury of splitting their income between the business and shareholders, allowing it to be taxed at different rates. Any income designated as owner salary will be subject to self-employment tax, whereas the remainder of the business dividends will be taxed at its own level (no self-employment tax). Although specific details regarding transfer of ownership depend on the governing agreement in the bylaws and articles of incorporation, ownership of this entity type is often easy to buy and sell.

There are generally no statutory limits on the right of a shareholder to transfer his stock, and the consent of other shareholders to the transfer is not required. However, in closely held corporations, the transfer or other disposition of shares is often restricted by a shareholders’ agreement or by provisions in the articles or bylaws.

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