In a previous article we discussed the characteristics (issues to consider) of a business in general. The article below has been drafted by a Denver business attorney at The McGuire Law Firm as an overview to the characteristics of a corporation that were mentioned in a previous article.
Corporate Formation: a corporation can only be formed by satisfying and complying with certain state statutes. The statutes will require the filing of a document with the appropriate state agency, generally the secretary of state, which is the case in Colorado, appointing the registered agent and paying a filing fee. Additionally, to maintain the corporate form, annual reports will need to be filed, again usually with the secretary of state.
Entity: A corporation is an entity that is separate and apart from the persons who have formed the corporation.
Liability: The corporation is liable for its contracts and actions, but the managers and shareholders of the corporation are not liable. The limited liability of a corporation is an advantage of the corporate structure.
Ownership: The corporation is owned by the shareholders. A share of stock can be considered a unit of ownership in the corporation. Corporate shares are issued by the corporation. The shareholders who own the corporation have different rights such as voting rights to elect the directors who will manage the corporation. Thus, shareholders do not necessarily manage the corporation, but they vote on and elect the individual that will manage the corporation. In many respects, share ownership in a corporation measure power. For example, if John owns 400 shares in Corporation ABC and Jeff owns 40 shares, John has ten times the votes as does Jeff and for every dollar Jeff receives in a corporate dividend distributions, John will receive ten. This applies of course unless another corporate document reads otherwise.
Management: A corporation is managed by the board of directors. It is possible that a shareholder and a director are the same person, but this also allows for a separation in ownership and management.
Transferability: A shareholder can transfer stock relatively freely. With a publicly held corporation just get online and sell your stock. Stock held within a closely held corporation may not be as easily transferred, but can still be sold, exchanged or transferred.
Taxation: A C corporation will pay tax on corporate income whereas an S corporation will pass income through to the shareholders. The shareholders of a C corporation will also have to pay individual income tax on the dividends they receive.
Raising Capital & Capital Needs: All businesses, including corporations need money. A corporation can raise capital by obtaining loans and/or through selling ownership interests in the corporation. There are advantages and disadvantages to both obtaining lending and allowing other third parties to obtain an ownership interest in the corporation.
If you have questions related to the formation, structure or taxation of a corporation please contact The McGuire Law Firm to speak with a Denver business attorney. Whether you are long time business owner or just starting a small business, a business attorney can help you make important legal decisions that your business can benefit from as it operates and grows.