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Corporation Law

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corporation_lawCorporate Attorneys provide legal services for business owners, corporations and individuals. From start-up enterprises to small privately held companies, a corporate attorney can help guided you through the legal ramifications being a business corporation.

A corporation is a legal entity created through the laws of its state of incorporation. Many states follow the Model Business Corporation Act. State corporation laws require articles of incorporation to document your Corporations creation and to provide provisions regarding the management of internal affairs. Most state corporation statutes also operate under the assumption that each corporation will adopt bylaws to define the rights and obligations of officers, persons and groups within its structure. States also have registration laws requiring corporations that incorporate in other states to request permission to do in-state business.

The law treats a corporation as a legal "person" that has standing to sue and be sued, distinct from its stockholders. The legal independence of a corporation prevents shareholders from being personally liable for corporate debts. It also allows stockholders to sue the corporation through a derivative suit and makes ownership in the company (shares) easily transferable. The legal "person" status of corporations gives the business perpetual life; deaths of officials or stockholders do not alter the Corporations structure.

Corporations are taxable entities that fall under a different scheme from individuals. Although corporations have a "double tax" problem --both corporate profits and shareholder dividends are taxed -- corporate profits are taxed at a lower rate than rates for individuals. Corporate law has important intersections with contract and commercial transactions law.

Types of Business Incorporation

  • Sole Proprietorships - A sole proprietorship has only one owner, and one owner only. A sole proprietorship can be created without formalities. In the sole proprietorship, the owner makes all the management decisions for the business. All of the profits and liabilities of the business also belong to the sole proprietor. Thus, if the business assets cannot pay the bills, the owner of the sole proprietorship will be held personally liable to the creditors. A sole proprietorship is not a legal entity - it does not exist apart from its owner.

  • General Partnerships - A general partnership does not need formalities. In a general partnership, two individuals agree to own the business and make management decisions for the business. The partners share the profits and financial losses of the partnership. The partners of the general partnership are also individually liable for the business debts if the business cannot pay for its bills. Additionally, a partner in a general partnership may bring contract, tort and criminal liability on to the other partner, because the partners are considered agents of the other. Partners, however, have a duty to act in the best interest of the partnership.

  • Limited Partnerships - In a limited partnership, there are one or more general partners and one or more limited partners. The general partners make the management decisions of the business, while the limited partners do not. The general partners, however, also assume 100% of the risk for the liabilities and debts of the limited partnership. The limited partners, on the other hand, only risk the financial contributions they made to the limited partnership. Generally, all the partners in the limited partnership share the profits of the business.

  • Corporations - A corporation is a legal entity apart from its owners (shareholders) and managers (officers and directors). A corporation can buy and sell property, enter into contracts, and be sued in it's own name. A corporation can only be created by state statute. Thus, in order to form a corporation, you must follow the specific guidelines required by your state statutes. The shareholders of a corporation are generally not responsible for the debts of the corporation aside from their financial contribution to the corporation.

  • Limited Liability Companies - A limited liability company (LLC) shares the limited liability of a corporation, but is not held to the same strict management requirements under law. The LLC is, however, a legal entity created only by state law. An LLC is generally defined as a business entity that consists of one or more persons. The LLC has managers, members and sometimes, employees. The owners (or members) of the LLC participate in the management of the business. Members, managers and employees are not held personally liable for the debts of the business.

  • S-Corporation - An S Corporation is actually a C Corporation which then obtained special tax status from the Internal Revenue Service (IRS). The Corporation must apply to obtain this special status within a certain time frame after its incorporation. Instead of being imposed on the Corporation itself, the profits and losses are transferred, for tax purposes, to Shareholders (as though they were partners). That avoids double taxation (i.e. at the corporate level and again at the personal level) and does not alter any of the legal protection, which a Company offers.

Characteristics of the S Corporation include:

  • Protection of the Shareholders' Assets;
  • Profits and Losses of the Corporation Allotted Directly to the Shareholders;
  • US Citizenship or Residency Required for Shareholders;
  • Number of Shareholders Limited to 75; and
  • Only One Class of Shares.

Business organization laws vary depending on the state of incorporation. An attorney will help you determine what type of business structure is best for your organization. Timelines and deadlines for creating a business organization are generally strict in many states. A lawyer can assist you with following all the detailed procedural rules, contacting all the necessary state and federal officials, and adhering to the deadlines for organizing a business organization.

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