The label, "C-Corporation"
merely refers to a regular, state-formed corporation. To be formed,
an Incorporator must file Articles of Incorporation and pay the requisite
state fees and prepaid taxes with the appropriate state agency (usually,
the Secretary of State).
Legal and Tax Life
which is properly formed and operated as a corporation assumes a separate
legal and tax life distinct from its shareholders. A corporation
pays taxes at its own corporate income tax rates and files its own corporate
tax forms each year (IRS Form 1120).
and Control in Corporations
Normally, a corporation's
management and control is vested in the board of directors who are elected
by the shareholders of the corporation. Directors generally make policy
and major decisions regarding the corporation but do not individually represent
the corporation in dealing with third persons. Rather, dealings with third
persons are conducted through officers and employees of the corporation
to whom authority is delegated by the directors of the corporation.
the owners of a corporation.
The Board of Directors
is responsible for the Management and policy decisions of the corporation.
There are, however, a few instances when the shareholders are required
to approve of the Actions of the Board of Directors (e.g. amendment to
the Articles of incorporation, sale of substantially all of the corporate
assets, the merger or dissolution of the corporation, etc...).
are elected by the Board of Directors and are responsible for conducting
the day-to-day operational activities of the corporation. Corporate
officers usually consist of the following: (President, Vice-President,
of Persons Required
In most states,
one or more persons may form and operate a corporation. Some states,
however, require that the number of persons required to manage a corporation
be at least equal to the number of owners. For example, if there
are two shareholders, there must also be a minimum of two directors.
often offer their employees unique fringe benefits. For example,
owner-employees may often deduct health insurance premiums paid by the
corporation from corporate income. In addition, Corporate-defined
benefit plans often afford better retirement options and benefits than
those offered by non-corporate plans.
To retain the
corporate existence and thus the benefits of limited liability and special
tax treatment, those who run the corporation must observe corporate formalities.
Thus, even a one-person corporation must wear different hats depending
on the occasion. For example, one person may be responsible for being
the sole shareholder, Director, and Officer of the corporation; however,
depending on the action taken, that person must observe certain formalities:
Annual meetings must be held, corporate minutes of the meetings must be
taken, Officers must be appointed, and shares must be issued to shareholders.
Most importantly, however, the corporation should issue stock to its shareholders
and keep adequate capitalization on hand to cover any "foreseeable" business
Liability for Corporate Debts
formalities are not observed, shareholders may be held personally liable
for corporate debts. thus, if a thinly capitalized corporation is
created, funds are commingled with employees and officers, stock is never
issued, meetings are never held, or other corporate formalities required
by your state of incorporation are not followed, a court or the IRS may
"pierce the corporate veil" and hold the shareholders personally liable
for corporate debts.
corporation is taxed for its own profits; then, any profits paid out in
the form of dividends are taxed again to the recipient as dividend income
and the individual shareholder's tax rate. However, most small corporations
rarely pay dividends. Rather, owner-employees are paid salaries and
fringe benefits that are deductible to the corporation. The result
is that only the employee-owners end up paying any income taxes on this
business income and double taxation rarely occurs.
is to elect the S-Corporation Status as discussed earlier.
Please consult an accountant or C.P.A. who knows and understands the intimate
details of your business along with federal and local tax rules so that
you can make the best decision regarding which form of business entity
(S-Corporation or C-Corporation) will best suit your needs.
of a Corporation
As a separate
legal entity, a corporation is capable of continuing indefinitely. Its
existence is not affected by death or incapacity of its shareholders, officers
, or directors or by transfer of its shares from one person to another.
Protections for Corporations
Although a corporation
is not a "citizen" under the privileges and immunities clause of the Fourteenth
Amendment to the U.S. Constitution, a corporation may exercise some of
the constitutional protections granted to natural persons:
to Due Process and Equal Protection: Corporations enjoy the right
to equal protection and due process of law under the Fourteenth and Fifth
Amendments to the U.S. Constitution and under similar provisions of the
of Speech: Absent some narrowly drawn restrictions serving compelling
state interests, corporations have the right to express themselves on matters
of public importance whether or not those issues "materially affect" corporate
to Counsel: While a corporation cannot be imprisoned, a criminal
action can result in fines and other penalties that could harm shareholders,
officers, and other persons. Thus, a corporate criminal defendant has a
Sixth Amendment to a Right to Counsel. But note, because a corporation
faces no risk of incarceration, it has no right to appointed counsel if
it cannot afford to retain private counsel
Privilege Against Self-Incrimination: Corporations have no privilege
against self-incrimination (e.g. to prevent disclosure of incriminating
1994 - 2012 Incorporate USA, Inc.