A corporation is a legal entity that is separate and distinct from its owners. Corporations possess many of the same rights and responsibilities as individuals. They can enter into contracts, borrow money, loan money, be involved in litigation, hire employees, own assets, and pay taxes.

Key Takeaways

  • A corporation is legally a separate and distinct entity from its owners. Corporations possess many of the same legal rights and responsibilities as individuals.
  • An important element of a corporation is limited liability, which means that its shareholders are not personally responsible for the company's debts.
  • A corporation may be created by an individual or a group of people with a shared goal.

A corporation's most important characteristic is always limited liability.  This means that shareholders take part in the profits through dividends and stock appreciation but are not personally liable for the company's debts.

The Creation of a Corporation

A corporation is created when it is incorporated by a group of shareholders who share ownership of the corporation, represented by their holding of shares of stock and their pursuit of a common goal.  The first step is to file Articles of Incorporation and then issue stock to the company's shareholders. The shareholders are required to elect the board of directors in an annual meeting.  Additionally, Corporate Bylaws are drafted, an EIN (Tax ID Number) is obtained so a Corporate Bank Account can be opened, and a Statement of Information is filed.  An S-Corp election can be made at this time as well, which is a Small Corporation (100 or fewer shareholders) and allows for a flow-through tax structure. 

The shareholders of a corporation typically receive one vote per share.  They hold an annual meeting during which they elect a Board of Directors. The board hires and oversees the senior management that is responsible for the corporation's day-to-day activities.  The board of directors executes the corporation's business plan. Although the members of the board are not personally responsible for the corporation's debts, they owe a duty of care to the corporation and can incur personal liabilities if they neglect this duty.

If you would like to set up your corporation, contact Duvel Law, APC., today to begin that process.  Most corporations can be established in less than 10 days.