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Corporate
& Incorporated
Generally
The
"C-Corporation" designation merely refers to a standard,
general-for-profit, 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 -- Corporations
Division).
Separate
Legal and Tax Life
A corporation
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).
Management
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.
Shareholders
Shareholders
are the owners of a corporation.
Board
of Directors
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...).
Corporate
Officers
Corporate
officers 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, Secretary, Treasurer).
Number
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.
Fringe Benefits
Corporations may 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.
Corporate
Formalities
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 debts.
Shareholder
Liability for Corporate Debts
Where corporate 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.
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Avoiding
Double Taxation
Generally, the 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.
S-Corporation
Election
Another
alternative 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.
Duration
of a Corporation
Where
corporate 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.
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Constitutional
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:
-Right
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 California Constitution.
-Freedom
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 business.
-Right
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
-No
Privilege Against Self-Incrimination: Corporations have
no privilege against self-incrimination (e.g. to prevent
disclosure of incriminating corporate records).
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The data herein has been compiled from various public sources.
The Onyx Group, LP attempts to provide as accurate information
as possible, but is not responsible for actual, consequential
or incidental damages DISCLAIMER: This Web Site is published
for informational purposes only and not to give legal advice,
since legal advice requires application of the law to specific
factual circumstances. Furthermore, due to the ever-changing
nature of the law, this material or portions of it may become
dated or obsolete. Therefore, the authors of this Web site
information disclaim any liability for direct, indirect or
consequential damages resulting from any person’s use
or reliance upon this information. Your review of this information
does not establish an attorney-client relationship between
you and Neider & Boucher, S.C., or any of our individual
attorneys.
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