Business Formation

A corporation is formed by the filing of Articles of Incorporation (the “Articles”) with the Secretary of State.  Owners of the corporation are usually issued certificates representing the shares of stock issued by the corporation. Like an LLC, a corporation may have a sole owner and the types of entities which may own a corporation is not restricted. Bylaws, which typically set forth the rules and procedures that govern the management of its business and conduct of its affairs, may be adopted by the corporation.

Generally, a corporation’s business, affairs and powers are managed and exercised by, or under the direction of, a Board of Directors (the “Board”). The initial directors may be set forth in the Articles, bylaws or elected by the incorporator(s). Thereafter, directors are elected by the shareholders of the corporation at the annual shareholders meeting. Day-to-day management of the corporation is usually placed in the officers of the corporation. Officers are chosen by the Board, which also has the power to establish committees, having authority to act on behalf of the entire Board. The position of director and of all required officer positions in a corporation may be held by a single individual.

Under the corporation’s limited liability protection, a shareholder’s personal liability is limited to the amount of the shareholder’s investment in the corporation. In addition, corporate shareholders, directors and officers are not liable for the debts and other obligations of the corporation or for the torts or criminal acts of one another. Generally, shareholders, directors and officers may be liable for the following matters: (1) the personal guarantees of corporate debt; (2) the receipt of improper distributions; (3) the common law theory of “alter ego liability”; or (4) the breach of a duty owed to other shareholders or the corporation.

A regular or general corporation (also referred to as a “C” corporation”) is a separate taxpaying entity for federal and state tax purposes, as distinguished from sole proprietorships, general and limited partnerships, most LLCs and Subchapter S corporations, which are not. A corporation is also subject to state income tax regulation, which generally conforms to federal taxation. Corporations are also subject to double taxation, as follows: a corporation’s profit is taxed once to the corporation and again when after-tax profit is distributed to the shareholders as dividend income, unless the shareholder is a corporation and eligible for the dividends-received deduction.

We have an established track record across a range of areas including the formation and administration of businesses, obtaining charitable status and incorporation for not-for-profit organizations, and drafting and reviewing partnership agreements. For more information on our services, please contact Patricia G. Cartwright.