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A closer look at corporations

As we discussed in our last post, one of the first -- and most important -- issues to confront anyone looking to start their own business is their legal identity. Specifically, they will need to decide how their new business will organize: as a general partnership, limited liability company, sole proprietorship, limited partnership or corporation.

As we also discussed last time, this isn't always the easiest decision for budding entrepreneurs to make given that most of their time and energy has heretofore been spent developing their product or service. As such, today's post -- the second in a series -- is designed to provide some basic background information on another business entity: corporations.


At a minimum, most people are at least familiar with the term corporation, and typically associate it with those large companies who dominate their respective areas and/or whose names are among the Fortune 500.

While this is certainly accurate, it's important to understand that corporations can exist on a much smaller scale yet enjoy the same legal protections.

In general, corporations are formed by filing articles of incorporation and other required documents with the Secretary of State.

The management structure of a corporation is essentially three-tiered in that it consists of shareholders, directors and officers.

The shareholders, meaning those who own the corporation, are in charge of electing the directors. The directors, in turn, are in charge of managing the general affairs of the corporation and appointing its officers. For their part, the officers oversee the everyday affairs of the corporation.

It's important to understand that in smaller corporations, a person can hold two or perhaps even all three positions.

The primary advantage of organizing as a corporation is that shareholders, directors and officers are insulated from liability for any debts or obligations incurred by the corporation. However, there are certain circumstances where a court can "pierce the corporate veil," something we'll explore in future posts.

Finally, when it comes to taxes, for-profit corporations are subject to what is known as double taxation, meaning they must pay a corporate income tax while its shareholders must pay taxes on any dividends paid out.

If you would like to learn more about corporations or business formation in general, consider speaking with a skilled legal professional. 

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Robert Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the May issue of The American Lawyer & Corporate Counsel magazine.Alex Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the December issue of The American Lawyer & Corporate Counsel magazine.

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