What is a US Corporation (Inc) - USAG24, Inc
You don't need a large business to have a corporation. In fact, most of the new corporations that are formed each month in Illinois are small operations...
You don't need a large business to have a corporation. In fact, most of the new corporations that are formed each month in Illinois are small operations. Even the owners of home-based businesses may find incorporation quite advantageous. This article will discuss the characteristics, advantages, and disadvantages of conducting your business as a corporation.
What is a Corporation? A corporation is a nonhuman entity. No, it is not like ET, the ExtraTerrestrial, and it is not created by God or Mother Nature. Instead, corporations exist because of a statute known as the Business Corporation Act (BCA).
The most important feature of a corporation is that it exists entirely separate and apart from its owners. Virtually all the legal and tax advantages associated with corporations flow from this essential element.
Corporations must have at least one owner, but there is no upper limit. The owners are called shareholders or stockholders. The ownership interests of the shareholders in a corporation are divided into units called stock, shares, or shares of stock. The rules governing corporations along with the advantages and disadvantages apply equally to corporations owned by one or more than one shareholder.
A corporation comes into existence when the prospective shareholders file a paper with the Illinois Secretary of State known as Articles of Incorporation. Among other things, the Articles of Incorporation require the prospective shareholders to determine the number of shares the corporation will be authorized to issue.
The total number of shares a corporation may issue is arbitrary, and there is no upper limit. However, the corporation must issue at least one share of stock for each shareholder. If the corporation will have more than one shareholder, the corporation should issue shares to each stockholder in proportion to their ownership interests. The proportion of the shareholders' ownership interests may vary from a fraction of one percent to a fraction over ninety-nine percent, depending on the deal the shareholders make when they decide to go into business together.
For example, if you are the sole shareholder, it makes no difference whether you own one share or one million shares. In each case, you own one hundred percent of the corporation. Likewise, if two people have decided to go into business on a sixty-forty basis, it makes no difference whether one owns six shares or six million and the other owns four shares or four million. In each case, their respective interests would be sixty-forty.
How Does a Corporation Conduct Business? A corporation conducts business through a chain of authorized representatives. The shareholders are at the top of the chain. The shareholders, however, do not directly manage the corporation's daily affairs. Instead, the shareholders meet at least once each year to elect a Board of Directors.
Corporations must have at least one director, but there is no upper limit. The directors' job is to make general business decisions for the corporation. Their decisions are then implemented by the corporation's officers, who are appointed by the directors each year at a directors' meeting.
The officers consist of at least the following: president, treasurer, and secretary. The president is responsible for managing the corporation's daily operations. The treasurer manages the corporation's money, while the secretary maintains the corporation's nonfinancial books and records. Corporations may also have one or more vice presidents. A vice president's duties may vary, depending on the corporation's needs. For example, the corporation may have vice presidents for sales, marketing, operations, personnel, and so on.
The shareholders may elect themselves as the directors. In their capacity as directors, they may then appoint themselves as one or more of the officers. If you are a sole shareholder, you may elect yourself as the sole director and, as the sole director, you may appoint yourself as president, treasurer, and secretary. This arrangement is not considered a conflict of interest, and it is permitted by the BCA. Indeed, who else would you want to run your business?
What Are the Advantages of Corporations? You may recall that the essential element of corporations is their existence entirely separate and apart from the shareholders. This feature gives rise to the principal advantage of corporations--limited liability protection.
Because a corporation exists apart from the shareholders, the corporation alone is liable for its debts. Even though they own and manage the corporation, the shareholders are not personally liable for its debts.
For example, let's suppose that I am the sole shareholder of EZ Flush, Inc., a corporation through which I conduct my plumbing business. While attempting to fix a pipe, I accidentally flood my customer's basement with sewage. The corporation alone is liable for the damages caused by the flooding. I am not personally li
MIchael Schmidt
USAG24 Group
pr@usag24.com
USAG24 Group 23. Juni 2010, 22:28:56 von PRGateway
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