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Understanding more about business formation: Corporations

Much of the discussion surrounding the launch of a new business understandably centers on the long-term viability of the product or services that are going to be offered, the sales projections and how the organization will look to define itself in the marketplace.

While these are all incredibly important considerations, equally important is how the organization will look to define itself in the eyes of the law. That's because every choice of legal entity -- limited liability company, corporation, limited partnership, sole proprietorship and general partnership -- has unique attributes that may or may be in their best interests going forward.

In recognition of this, today's post, the first in a series, will provide some basic background information in the hopes of providing entrepreneurs with as much information as possible.

Corporations  

Those interested in organizing their business as a corporation will have to file certain documents with the Secretary of State (including articles of incorporation and corporate bylaws) pay a registration fee and complete a series of other important steps.

Regarding the structure of a corporation, it consists of three levels: shareholders, directors and officers.

The corporation is owned by the shareholders who are tasked with electing the board of directors, who, in turn, are tasked with managing the general affairs of the corporation. Part of these management duties include appointing the officers who are tasked with running the corporation's day-to-day operations.

While most of us envision corporations on a huge scale, they can actually be rather small, such that a single individual holds all three of these positions.

It's important to understand, however, that all for-profit corporations -- regardless of their size -- are subject to what is known as double taxation. This essentially means they must pay a tax on corporate income and that its shareholders must pay a tax on any dividends received.

As to why people would want to consider organizing as a corporation, that can be attributed to it limited liability. Specifically, shareholders, directors and officers cannot be held personally liable for any of the debts or the tortious conduct of the corporation.

If you would like to learn more about organizing as a corporation or have any questions concerning business formation, please consider speaking with an experienced legal professional.

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