A corporation is an entity, typically a business, that has the authority under law to act as a single entity, distinct from the shareholders who own it. Only the corporation itself can be held liable for corporate obligations, including maintaining required business records.
There are many different types of corporations. In general, they are classified depending on certain specific factors, including:
- The corporation’s business purpose;
- The manner in which the income of the corporation is taxed;
- The number of shareholders in the corporation;
- The amount of stock to be issued by the corporation; and
- Whether or not the corporation is incorporated for the purpose of making a profit.
Typically, when an individual refers to a corporation, they are referring to one of the two main types of corporations that exist according to tax laws. These are C Corporations and S Corporations. A C Corporation is a corporation that is taxed separately from its owners. An S Corporation, however, is not.
There are some benefits to forming a corporation. These include:
- The corporation can survive changes in ownership;
- The corporation can exist perpetually;
- A corporation is considered a person and, therefore, is entitled to certain constitutional protections; and
- There is limited liability because only the corporation itself is held responsible for its obligations.
If I Plan to Form a Corporation, What Types Are Available?
There is a wide variety of types of corporations that are available. The most common types include:
- A business corporation, which is a corporation formed to engage in commercial activity for a profit. It is also known as a for-profit corporation;
- A C Corporation, which is a corporation whose income is taxed through the corporation rather than through its shareholders. If a corporation does not choose S Corporation tax status, pursuant to the Internal Revenue Code, it is a C Corporation by default;
- A close corporation, which is a corporation whose stock is freely traded and is held by a few shareholders. The shareholders are often within the same family. The privileges and requirements of close corporations vary by state;
- A controlled corporation, which is a corporation in which the majority of stock is held by one individual or firm;
- A cooperative corporation, which is a corporation primarily organized for the purpose of providing services and profits to its members in contrast to a corporation organized for corporate profit. It is most commonly formed to purchase real property, for example, an apartment building, so that the shareholders may lease the apartments;
- A foreign corporation, which is a corporation that is registered in one state but also authorized to do business in one or more other states. This type of corporation is usually created to take advantage of tax breaks or state incorporation laws. It can also refer to an overseas corporations doing business in the United States;
- A non-profit corporation, which is a corporation organized for a purpose other than making a profit. A non-profit corporation is typically granted special tax treatment;
- A private corporation, which is a corporation that is founded by and composed of private individuals. It is formed principally for a nonpublic purpose, which may include manufacturing, banking, or railroad corporations. It may also include charitable or religious corporations;
- A professional corporation, which is a corporation that provides a service of a type that requires a professional license. These are usually corporations made up of professionals such as:
- veterinarians; or
- various other professions.
- A public corporation, which is a corporation whose shares are traded to and among the general public. These corporations are government-owned. They engage in activities that benefit the general public, while usually remaining financially independent. These corporations are managed by a publicly appointed board;
- An S Corporation, which is a corporation whose income is taxed through its shareholders. Only a corporation with a limited number of shareholders can elect S-corporation tax status under the Internal Revenue Code.
How is a Corporation Formed?
A corporation is usually formed by complying with state corporate laws. Most states base their corporation laws on a model act, the Revised Model Business Corporation Act (RMBCA).
Corporations are formed when the articles of incorporation are filed with the Secretary of State in the state where the corporation is forming. These articles must contain a number of factors, discussed below. Each state has its own corporate law requirements. Therefore, there may be additional requirements. It is important to seek the assistance of an attorney when forming a corporation to ensure all requirements are satisfied.
What is a Charter?
A charter is a document of the corporation evidencing that the government authorized the creation of a business or corporate franchise. A corporate charter is a document that a representative of the corporation files with the Secretary of State when a business is incorporated. In most cases, the corporate charter includes the articles of incorporation.
The articles of incorporation are a document that establishes the corporation as a business entity. This document becomes public record. It provides information regarding the corporation, which includes:
- The corporation’s name;
- The corporation’s contact information; and
- Information about the corporation’s stock shares.
Every state has its own articles of incorporation form. It is generally found on the state website for the entity that handles business filings. The information included in the articles of incorporation is usually:
- The name and principal address of the corporation;
- The corporation’s purpose. In many states, this can be a general statement;
- The corporation’s duration, in other words, whether it is intended to exist forever or only for a limited period of time;
- The name and address of the corporation’s registered agent and the registered office;
- A registered agent is an individual who agrees to accept service of lawsuits and other documents on behalf of the corporation;
- In some states, the agent is required to sign a document acknowledging and agreeing to act as the registered agent. In other states, a listing of the names and addresses of the members of the corporation’s board of directors is required;
- Information regarding the number and types of shares of stock the corporation is authorized to issue;
- This number and types of shares may be used in calculating taxes or fees;
- The names and addresses of any incorporators, or individuals who sign the articles of incorporation and ensure they are filed;
- This can be any individual; and
- There may be more than one incorporator;
- The signatures of the incorporators.
What Happens if a Corporation Loses its Charter?
If a corporation’s charter has expired or has been relinquished, revoked, or voluntarily terminated, it is known as a dead or dissolved corporation. A dead or dissolved corporation cannot legally operate as a corporation under the law.
Do I Need an Attorney for Help with Corporation Issues?
Yes, it is essential to have the assistance of an experienced corporate attorney with any corporation issues you may have. It is even an excellent idea to meet with an attorney prior to beginning the incorporation process. Since there are so many options of types of corporations available, an attorney will be able to help you decide which type of corporation you should form.
Your attorney can then assist you with the incorporation process. This includes filing any necessary paperwork. An attorney will also be there to help if any issues arise during or after the incorporation process.