What is a Corporation?
A corporation is a legal entity; that is, a corporation is seen as a person under the law with its own rights and liabilities. The corporation’s rights and liabilities are different from the individuals who make up the corporation. The rights and liabilities of a corporation include raising money, forming contracts, filing suit, being sued, and paying taxes.
How is a corporation organized?
The minimum qualifications for a corporation are at least one director, officer, and shareholder. The corporation is managed and administered by directors while its officers hold positions such as president and secretary.
Types of Corporations:
What are the advantages of forming a corporation?
Corporations have many advantages:
(1) Limited Liability – owners and stockholders are not personally responsible for paying corporation debt, so creditors cannot for after them.
(2) Flexibility with Continuity – ownership may change easily with the selling of shares, yet the corporation as a person continues unchanged with the changes in ownership.
(3) Tax Advantages – small businesses are able to take advantage of significant tax savings.
(4) Raising Funds – lenders more easily lend money to corporation. Also corporations may raising money by selling corporation stock.
What is a Limited Liability Company (LLC)?
An LLC is a business entity, which combines elements of a corporation, partnership, and sole proprietorship. An LLC is created under state law and unincorporated, yet it may behave like a corporation by raising funds, adding new members, and limiting liability. The concept behind an LLC is to allow members (owners/partners) to share in the ownership benefits while risking only liability of their investment in the company. That is, if an LLC files for bankruptcy, a member will lose their investment in the company but will not have to pay any outstanding company debt. However, an LLC behaves like a sole proprietorship or partnership in its operation flexibility and its pass-through tax status.
LLC compared to Corporations