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Overview

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  • A regular business corporation is a “for-profit” corporation that is a separate entity from its owners for both legal and tax purposes.
  • It is formed at the state level with each state setting the requirements for formation.
  • All business corporations have the same legal structure. The owners are called shareholders or stockholders. The shareholders elect the directors who make the broad policy decisions for the corporation and appoint the officers of the corporation. Every corporation must have a president, chief financial officer (or treasurer), and secretary.
  • For tax purposes, a business corporation is classified as a C Corporation or an S Corporation. These classifications only determine how the corporation is taxed. They have no impact on the management structure of the corporation nor do they affect or diminish the limited liability protection of the corporation in any way.
  • In a C Corporation, profits and losses are taxed or treated at the corporation level, while in an S Corporation the profits and losses “pass through” the corporation and are reported on the personal tax returns of the shareholders.

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Advantages

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  • Corporations have been in existence for a couple of centuries. They have structures that are commonly understood and are subject to very extensive and time-tested regulations in each state.
  • They offer some advantages not available to the LLC entity that is taxed in normal LLC tax classifications:
    • A business that wants to reinvest its profits in the company for expansion or other reasons rather than have the profits distributed to the owners may do so with a C Corporation but not a pass-through tax classification of an LLC;
    • A C Corporation may deduct certain employee benefits (like reimbursement of medical expenses or payment of medical insurance premiums) and such payments are not taxable to the employees. With an LLC, these payments are included as taxable income to the members;
    • It is easier to create profit-sharing arrangements or stock options plans in a corporation than in the LLC structure;
    • It is easier to raise capital from outside investors with a corporation than an LLC because of the well-established regulatory structure of corporations. The LLC entity type has only been widespread in the United States in the last 15 to 20 years and there is less state statutory regulation and more dependence on a written operating agreement as the governing document of the parties.
    • If it is anticipated that a business will eventually go public, the C Corporation structure would be a necessity.

 

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Management

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Shareholders

  • In their capacity as shareholders, the owners of a corporation have very defined, but limited rights. Their main responsibility is to annually elect the directors of the corporation. While this is a significant right in a publicly-traded or large privately-held corporation, in a small business corporation where there are commonly just 2 or 3 shareholders who are probably also the directors of the corporation, the annual election of directors is often just a ministerial task.
  • Shareholders are also given the right to vote on major changes in the corporation, such as a merger with another company, sale of substantially all of the company’s assets, any major change in stock rights, and dissolving (terminating) the corporation.

Directors

  • The directors set major policy of the corporation but, in this capacity, do not operate the business on a daily basis. Directors may have regularly scheduled meetings to approve or authorize actions by the officers or call special meetings for this purpose.
  • In a small business corporation, it is permitted (and quite common) to dispense with formal meetings of directors as well as shareholders. Every state permits action of shareholders and directors to be taken by simply preparing written consent minutes without a meeting and having the minutes signed by the shareholders and directors.

Officers

  • Every state requires at least a president and secretary and most states require a treasurer or chief financial officer as well. One person may fill more than one, or even every, office position. A single person corporation is not required to appoint a different person to any office position.
  • The principal officers run the corporation on a day to day basis. They are responsible for the hiring and firing and supervision of employees and other responsibilities of running the business, all in accordance with any parameters set by the board of directors. Officers are usually appointed by the board, not elected, and serve until they resign, die, or are removed by the board.

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Available Entity Formations

Business Corporation


$145 + state fees

Basic

Basic entity formation and still free assistance from an experienced attorney

  • Name availability check with your formation state
  • Prepare and file your Articles of Incorporation
  • Customized Action by Incorporator electing your first Board of Directors
  • Sample Minutes and Bylaws
$325 + state fees

Priority Deluxe

Get more, get it faster, and get it fully customized

adds ...
  • Minute book embossed with your corporation name
  • Customized bylaws
  • Customized organizational minutes electing officers, authorizing bank accounts, sale of initial stock, and more
  • Customized initial stock certificates completed for initial shareholders
  • Customized stock ledger listing capital contributions of initial shareholders and their ownership of shares
$375 + state fees

Priority Premium

Get extra bundled services and save money

adds ...
  • Preparation of the federal application form to obtain your corporation's tax ID number (EIN)
  • Obtaining your EIN from the Internal Revenue Service to enable you to immediately open your new corporation bank account
  • FREE 2 years MinutesMinder service to prepare customized corporate minutes documenting all your important activities (a $250 value)


See State Fees and Options for Your Selected Entity Type




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