A corporation is a type of entity that is formed and regulated on a state level. The corporation is formed by filing Articles of Incorporation with the Secretary of State within the state of incorporation.
Ownership in a corporation is expressed through the issuance of shares while the management of the corporation is governed by a board of directors who are elected by the shareholders..
The board of directors select officers who manage the day to day activities of the corporation. The board of directors also will draft bylaws for the corporation Bylaws are basically written protocols that define the way that the corporation will be governed.
Corporations are required to hold annual meetings for both the shareholders and the board of directors. The annual meetings are held to discuss and decide on important decisions that are faced by the corporation.
Corporations are taxable entities and are subject to federal as well as state and local taxation. Unlike the the Limited Liability Company and the S-Corporation where the income of the company flows through to the individual tax returns of the shareholders or members the corporation is required to file a tax return much in the same way as an individual does. Profits from the corporation can be retained by the corporation to use for the purpose of furthering the corporations business interests or they can be distributed to the shareholders as dividends. The percentage of dividends of that each shareholder is entitled to is directly correlated to the amount of shares that they own. Dividends distributed to the shareholder are also subject to taxation but typically at a much lower rate than ordinary income is, this is where the term “double taxation” often associated with the corporation stem from.
The corporation is the oldest form of business entity and has been historically a successful innovation that has allowed a collective group of individuals to collectively pool their resources and capital to pursue a common purpose their risk limited solely to the amount of stock owned. With that said a standard corporation may not be the best entity choice for everyone in today’s business world. The s-corporation and the limited liability company present many of the same benefits of asset protection provided by the corporation while allowing for less formality and more flexibility in regards to the distribution of ownership.