What
Is A Corporation?
SEPARATE
LIFE - Assuming
that a corporation is properly formed and maintained,
it is an entity with a legal existence that is separate
and distinct from its owners (shareholders). And is
a separate "person" for tax purposes. A
corporation is generally in existence perpetually
until either affirmative action is taken to dissolve
the corporation or until the corporation is dissolved
by operation of law for failure to properly maintain
its existence...i.e. By failing to file annual reports
or take other statutorily required actions.
WHO
OWNS A CORPORATION? - A
corporation is owned by its shareholders. Each shareholder
owns a percentage of the total equity of the corporation
based upon the number of shares held by that shareholder
to the total amount of shares of the corporation's
stock that are issued and outstanding. Certain major
transactions, such as dissolution and sale of substantially
all of the corporation's assets require the approval
of the shareholders.
WHO
MANAGES THE CORPORATION'S BUSINESS? - There
are two levels of management in most corporations.
First there is the Board of Directors. In most states
this may be a single person or it may consist of a
number of individuals. The shareholders of the corporation
normally elect the members of the Board of Directors.
The Board of Directors is generally responsible for
the overall management and policy of the Corporation.
Certain actions require the approval of the Board
of Directors depending on the laws of the relevant
state and the terms of the corporation's governing
documents.
The
second level of management are the officers of the
Corporation. The officers of the corporation are elected
by the Board of Directors and generally serve at the
will of the Board of Directors. The officers are generally
in control of the day-to-day business operations of
the corporation and for fulfilling the policies and
directives of the Board of Directors.
ARE
THE SHAREHOLDERS OR DIRECTORS LIABLE FOR THE DEBTS
AND OTHER LIABILITIES OF A CORPORATION?
- No. If properly organized and maintained,
the owners of the corporation will not be responsible
for the liabilities of the corporation. This is one
of the primary reasons for forming a corporation;
to insulate the personal assets of the owners of the
business from the debts and obligations of the business.
There
are exceptions to this general rule however, which
you should know about and keep in mind at all times
when operating your business. If the corporation fails
to follow corporate formalities and in certain other
instances, creditors may attempt to "pierce the
corporate veil." If a creditor is able to "pierce
the corporate veil" the creditor may have access
to the personal assets of the shareholder. For this
reason, it is necessary to be certain to follow all
corporate formalities and properly maintain your corporation.
Our E-Books contain many resources to assist you in
properly maintaining your corporation.
Individual
shareholders can also expose themselves by agreement
to the debts or obligations of the corporation. For
instance, lending institutions often require shareholders
to sign personal guarantees of corporate obligations
as a condition of financing.
|
