Corporations Law

Corporations are a type of business entity that offers liability protection to its owners. This means that personal assets, like houses and cars, are separate from the business's debts. Many entrepreneurs choose this structure over others because of the benefits it offers. It offers more liability protection than sole proprietorships and partnerships.

Corporations are essentially limited liability partnerships. Corporations are separate and distinct from their owners. In a corporate business structure, shareholders have the right to earn profits but they are not held personally or financially liable for the company's debts.

An entrepreneur's decision to form a corporation should be based on a thorough assessment of factors, including legal, financial, tax, and operational considerations. This article will help you understand the ins and outs of corporations and provide more in-depth resources and links.

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Professional Corporations: What You Should Know

A professional corporation (PC) is an organization of professionals in the same field. These professionals may wish to incorporate their practice. PCs are for licensed professionals like dentists, chiropractors, and optometrists. They offer the same benefits as regular corporations, but these corporations are specifically for personal service corporations.

In many states, this is the only option for individuals within certain careers. PCs offer individuals several benefits, such as limited personal liability for business debts.

A PLLC is a professional limited liability company. A PLLC is a type of professional service corporation. While it provides liability protection and has some tax advantages, if there's malpractice that protection might not cover it. State law usually defines what type of professional service can form a PLLC.

Starting a Corporation

When starting a corporation, the first step is to choose a business name. It should be unique and reflect the type of business. 

Then, you need to register the name with the secretary of state's office. You will need to file your article of incorporation with the state. This is sometimes called a corporate charter or "the articles." It is a foundational document that officially establishes a corporation under state law. It must include the name of the corporation, the purpose of the corporation, and other important information about the business.

Next, get the required business licenses and appoint a registered agent. This agent will be the contact person for the state. Finally, decide on the type of corporation you want to create. This could be a C corporation or an S corporation status, based on your needs.

Writing Corporate Bylaws

Corporate bylaws are rules that govern the daily operations of your business. Many consider the bylaws to be the most important document within the organization. Corporate bylaws are the rules that guide how a corporation operates. They cover topics like how decisions are made and who makes them. They specify the rights, duties, and responsibilities of an organization's members. It also discusses the Board of Directors and executive committees, if applicable.

Each set of bylaws is specific to that organization. Typically, they include the organization's name, purpose, and location. It also contains a list of its members. who is on the Board of Directors, and details a list of directors. They also specify what happens if a shareholder wants to leave the corporation. Every corporation should have bylaws, even if state law doesn't require them. They help avoid conflicts and ensure smooth business operations.

Corporate Taxes

Corporations have to pay taxes. The Internal Revenue Service (IRS) requires them to file a tax return each year. This tax return details their income and expenses. The corporate tax rate is different from the personal income tax rate, and there are different tax benefits available. 

Regular corporations, or C corporations, might face double taxation. This means they pay tax on their profits, and shareholders pay income tax on their dividends. They do this through their personal tax returns. S corporations and personal service corporations can avoid this. They pass their income directly to shareholders, who report it on personal tax returns.

What Happens When a Shareholder Wants To Leave the Corporation?

Shareholders might want to leave a corporation for various reasons. Corporate bylaws usually outline this process. If not, state law will guide the process. When a shareholder leaves, they might sell their shares or return them to the corporation. It's essential to have a clear plan to ensure the business continues running smoothly.

Ownership changes can have a lasting impact on your business. If you form your corporation with a shareholder buyout agreement, you will have the benefit of transferring your partnership without disrupting operations. 

Owners of a corporation can control the transfer of shares by executing a separate buyout agreement. They should be sure to keep accurate records of the nature of each shareholder's investment in the corporation. These provisions are typically included in the articles of incorporation, the bylaws, or in a separate written agreement.

Why Incorporate in Delaware?

Delaware is a popular choice for corporations. Many corporate giants are incorporated in this tiny state, including Apple and Coca-Cola. Why? Delaware is known as a tax haven. Its laws favor businesses. The state of Delaware does not collect corporate taxes from businesses that do not operate in the state, nor does it collect tax royalty payments. You are also not required to publicly divulge the name of your corporation's board of directors or shareholders.

Incorporating in this state can offer tax benefits and better liability protection. Plus, Delaware's court system is experienced in handling business cases. It's essential to know that if you operate in another state, you might need to register your professional entity there, too.

Hiring a Business Lawyer for Your Corporation

Starting a corporation involves many legal steps. It's wise to hire a business lawyer. They can guide entrepreneurs through processes like writing bylaws or understanding tax benefits. Whether it's about a startup, real estate, or understanding federal tax implications, a lawyer can help. They can ensure your business follows state law and operates correctly.

Speak to a business law attorney about incorporating your corporation today.