A corporation is a legal entity or association. The association is comprised of shareholders, members of the board of directors, and corporate officers.

The shareholders are investors who elect the board of directors. The board of directors oversee the corporation by issuing broad guidance and by hiring and retaining the corporate officers. The corporate officers carryout the corporation’s business operations, including the hiring and retention of employees, binding the company to contractual agreements, etc.

Unlike sole proprietorships, corporations have a perpetual existence. This means the corporation will continue in existence after the shareholders die.

Registration Requirements

A corporation is formed by filing articles of incorporation with the state in which the corporation wishes to be headquartered. This is often the state in which the corporation’s main operations are located.

Once the incorporater files the articles of incorporation, he may then elect the board of directors or adopt bylaws and issue shares of stock to shareholders. The shareholders can then elect the board of directors. Once the board of directors is in place, the board will usually ratify the prior acts of the incorporater and ratify the corporate bylaws.

Personal Liability

As with a limited liability company, a corporation is a separate legal entity from the individual shareholders who own the corporation. The shareholders have no liability for the corporation. The most the shareholders stand to lose is their investment in the corporation.

Similarly, the members of the board of directors have no liability for the corporation with respect to outside third parties. The board members may be liable to the shareholders in some circumsances.

The corporate officers are generally not liable for the corporation either. Corporate officers may be liable for their own intentional acts though.

Corporate Liability

Because a corporation is considered a separate legal entity separate from the owners, directors, and officers, the business’s assets are usually beyond the reach of the owners’ personal creditors. This means the individual shareholders personal debts and obligations might not encumber the corporation’s assets.

Creditors of the shareholders are not without recourse. Creditors of the individual shareholders may be able to obtain the shareholder’s corporate stock or corporate distributions in satisfaction of the shareholders debts.

Raising Capital

Like a partnership, corporations have several avenues available for raising capital. The corporation may raise capital by taking on debt under the corporation’s name, the corporation can issue and sell additional stock, or the corporation can raise capital through its business operations.

Tax Issues

A corporation is subject to federal income tax at the entity level. The corporation reports and pays tax on its gains and losses directly and then reports any distributions issued to the shareholders. The shareholders than report and pay a tax on their personal income tax returns for these corporate distributions. This is often referred to as double taxation. A corporation may avoid this double taxation by electing to be treated as a Subchapter S corporation. A Subchapter S corporation is taxed in a manner similar to that of partnerships.