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.
