What Is a Corporation?
Separate from business owners, corporations are their own legal entity which the owners control through the shares they have in the company. When incorporating, you will have the opportunity to state how many shares you own as the register of the corporation. For a one-person corporation, this will be a 100 percent share.
Forming a Corporation
Corporations allow for individuals to work together to generate a profit. Forming a corporation will be done on a state level and the requirements may vary greatly from one state to another. Corporations, unlike people, are given additional benefits from the state. As a corporation, a company has an infinite lifespan unless it is closed by the owner(s).
Forming a corporation will require:
- Choosing an available business name
- Appointing directors
- Filing articles of incorporation with the state
- Paying filing fees and license fees if necessary
- Creating bylaws for your business
- Holding your first annual meeting
- Issuing stock certificates
Bylaws are not a legal requirement, but they are highly recommended. Corporate directors will also need to be appointed and a registered agent may be a necessity within your respective state.
If you haven't set up your corporation, we provide an easy means of incorporating online. Our system takes into consideration every state's rules and requirements for incorporation.
If you are unsure of which entity to choose, seeking help from a lawyer is recommended. You can take advantage of our legal advice section. A lawyer will be able to explain "what is a corporation?" and help you determine if incorporation is the right choice for your business ventures.
Public and Private Corporations
When a corporation is formed, or later as it expands, shares can be open to the public. A publicly owned corporation will allow investors to be able to buy shares of your corporation. It's possible to remain a privately owned corporation wherein shares of the company are not publicly available.
When going public, there are further rules and regulations that your corporation must follow to adhere to the strict rules of the U.S. Securities and Exchange Commission (SEC).
Legal Protection Under Limited Liability
As a corporation, the owners are not held liable for the debts of the corporation. As a separate entity, the company's debts are not your responsibility. Shareholders are never held liable for the debts of their companies unless fraudulent activities have taken place and the corporate veil has been pierced.
Liability of the owners of stock is limited only to the investment made.
Dividends and Stock Appreciation
While limited liability is present, stockholders are able to profit from a corporation through dividends and the appreciation of stock. Non-profit corporations also exist wherein profits aren't distributed to the owners.
Owners of a business often receive a salary on top of the dividends and stock appreciation seen. If an owner acts as a CEO or manages the corporation, they will receive a salary as well as the benefits of the stock dividends and appreciation if the stock is public.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.