How is corporation organized

If the business affairs of a corporation and its shareholders are so entangled that they are, in effect, one and the same, an opponent in a lawsuit may be able to convince a court to "pierce the corporate veil" and impose personal liability, or responsibility, on the active shareholders. Personal liability may also be imposed if the corporation does not comply with required legal formalities or fails to keep proper records.

If you want to form a corporation, you must obtain a state charter. Here are some things to do before you apply:. Choose the state in which you want to incorporate. This will usually be the state where your company has its headquarters or where it conducts most of its business. Some people prefer to incorporate in states that impose few regulations or no corporate income tax, such as Delaware, Nevada, and Wyoming.

Decide whom you want as officers. A well-defined structure helps a business shape its goals. Corporate structure is useful for startups because it helps them to outline positions and responsibilities. This can also attract investors who easily understand how a company plans to make profits. Many states allow a single person to carry out each role in the corporate structure. However, your corporation may need more than one board member if you have more than one shareholder. Check with your Secretary of State to learn more.

Employees aren't usually considered part of the corporate structure, but they are an important part of any organization.

Employees do day-to-day tasks and help the company reach its goals. They report to the corporate officers. A business type usually refers to the company's legal structure and tax status.

Standard business types include the following:. Sole proprietors file a Schedule C with their Form Tey report profits and losses on their personal tax returns. They must also file a Schedule SE, which calculates self-employment taxes.

Business losses can offset income that sole proprietors earn elsewhere. Sole proprietors often rely on personal savings and assets because they may have a hard time raising money or getting loans. General partnerships rely on partners to manage the business and assume personal liability for debts. Partners can take out loans and make business decisions. Limited partnerships include general partners and limited partners who have less personal liability and control over the company.

Limited partnerships take more paperwork but are ideal for companies with passive investors. LLPs give general partners limited personal liability.

This is ideal for professional partnerships because each partner is responsible for their own activity. LLCs combine corporations and partnerships to offer personal liability protection without as many rules and requirements that corporations follow. LLCs can have any number of shareholders. Members and managers can take part in business operations.

There are exceptions to this rule. In some cases, shareholders may be called upon to sign a separate guarantee for corporate debt. And, shareholders in closely held companies can inadvertently be drawn into having to satisfy corporate debts when they commingle their personal finances with those of the company or fail to satisfy the necessary legal procedures to maintain a valid corporate existence.

A Limited Liability Corporation LLC is a unique business structure allowed by state statute which may be treated as either a corporation, partnership, or individual for tax purposes and which may protect its owners members from some debts or actions. Corporations are not without certain disadvantages. Most corporations are taxable entities, and their income is subject to taxation.

This effect occurs when shareholders receive cash dividends that they must include in their own calculation of taxable income. Thus, a dollar earned at the corporate level is reduced by corporate income taxes; to the extent the remaining after-tax profit is distributed to shareholders as dividends, it is again subject to taxes at the shareholder level.

So, a large portion of the profits of a dividend-paying corporation are apt to be shared with governmental entities. Governments are aware that this double-taxation outcome can limit corporate investment and be potentially damaging to an economy. Another burden on the corporate form of organization is costly regulation.

In the U. History shows that the absence or failure of these regulators will quickly foster an environment where rogue business persons will launch all manner of stock fraud schemes. These frauds can quickly corrupt public confidence without which investors become unwilling to join together to invest in new ideas and products. It seems almost unavoidable that governmental regulation must be a part of the corporate scene. However, the cost of compliance with such regulation is high.

Public companies must prepare and file quarterly and annual reports with the SEC, along with a myriad of other documents. Many of these documents must be certified or subjected to independent audit. Further, requirements are in place that require companies to have strong internal controls and even ethical training. Necessary cookies are absolutely essential for the website to function properly.

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