Out of the different types of businesses, the Corporation is the most important. Although sole proprietors and Partnership s make up the majority of the businesses in the US, corporations generate the majority of the nation's revenues. A corporation is a distinct legal entity and shares many of the same rights as a person. A corporation can sue or be sued, buy or sell property, etc.
A corporation is much more difficult and expensive to start than a Sole Proprietorship or a partnership. When starting a corporation the incorporators must create a set of bylaws and prepare articles of incorporation. The following must be included in the articles:
Name of the corporation
The life of the corporation (possibly forever)
the number of shares to be issued and the classification of the shares stating the limitations and rights of the stated classifications
Nature of the shareholders rights
Number of members on the initial board of directors
The bylaws are the rules that will regulate the operation and existence of the corporation.
There are three basic interest in the corporation: the shareholders (owners), the directors, and the officers. The shareholders control the direction of the company, the policies and activities. Shareholders also elect the board of directors who choose the upper level managers.
Advantages of a Corporation
Ownership can easily be transferred because it comes in the form of stock.
The life of a corporation is not limited to the life of the owners
Liability is limited to the amount each owner invest. If an owner purchased $10,000 in stock, the most he or she can lose is $10,000.
The major disadvantage of a corporation is that earnings are taxed at the corporate level, and then again at the personal level where dividends and capital gains are taxed.
A corporation is defined as a legal entity, which is separate from its owners. Corporations have nearly every one of the rights and responsibilities possessed by an individual, which are as follows:
The right to enter into contracts
Loan and borrow money
Sue and be sued
Commonly, corporations are also called C Corporations and one of the most important aspects of a corporation is that it is a limited liability business. The benefits received by shareholders from a corporation include the ability to participate in profits through the appreciation of stock or distribution of dividends, but the shareholder is not held liable for the company’s debt.