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.
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