Corporations

Corporations

The Corporation is the legal form of a business that is at the heart of modern business law. The corporate form is not popular for new businesses.1 Most large companies use the corporation. Learn how to manage a corporation effectively.

Types of legal entities

Types of legal entities

Definition

A corporation2 is a type of legal entity3 created by state law. 4

Reason to Incorporate a Corporation

Corporations provide several benefits to businesses and investors:

  1. Limited liability and protection of personal assets,
  2. Flexible ownership structure with classes of stock, options, warrants, convertible debt, and the like,
  3. Flexible management structure and compensation schemes,
  4. Reliable body of law for dispute resolution, and
  5. Separate legal person identity (corporations can do many of the things that a natural person can do).

Types

Corporations are most often distinguished by the subchapter of the Internal Revenue Code5 under which they fall. There are three common types of corporation:

Basic information

After you form a corporation, you must maintain it to keep it in compliance. Track the following information for a corporation:

  • Legal name is official name on the Articles of Incorporation.
  • Address should be the principal place of business.
  • Registered Agent or legal address is the place where you receive service of process.
  • Website is not legally required but is part of standard contact information.
  • Email is not legally required but is part of standard contact information.
  • Phone is not legally required but is part of standard contact information.
  • Place of Incorporation is the legal jurisdiction for registration. In the United States, legal entities are formed under state law.
  • Legal Form is the type of legal entity, such as: limited liability company, partnership (limited, limited liability, limited liability limited, or general), corporation, trust, or estate.
  • Tax Status is determined by federal tax law. In general, entities are either taxable, pass-through, or not-for-profit. LLCs are usually pass-through because that is one of their principal advantages over corporations. However, LLCs can elect other tax status.

Documents and filings

This table summarizes the types of corporation documents and filings:

TypeTiming7Expiration8
Organizationalat formationNo
Shareholder agreementat formationNo
MinutesongoingNo
InsuranceongoingYes
LicensingongoingYes
Debt instrumentsongoingYes
FilingsongoingYes
CertificatesongoingNo
OtherongoingYes

Compliance obligations

After forming a corporation, it is important to track compliance obligations. Compliance requirements vary widely based on jurisdiction, line of business, and type of legal entity.

Here is how to design compliance tracking:

RequirementJurisdiction9Expiration10RecurringFrequency11
Annual reportStateYesYesAnnual
Foreign authorizationStateYesYesAnnual
Trade name or DBAStateYesYesAnnual
LicenseAnyYesYesAnnual
PermitLocalNoNoLonger
Estimated taxesFederalYesYesQuarterly
OtherAnyYesYesAnnual

Of course, you should substitute actual filing requirements for your business. This table gives you a framework to capture the essentials of any compliance filing.

Officers and directors

Officers and directors over time

Not all businesses have a Board of Directors or even officers. LLCs, corporations, and some forms of partnership generally create a corporate structure for governance (a board of directors) and management (officers or managers).

Most states require that corporations have a Board of Directors unless the shareholder agreement provides otherwise.12

People often serve more than one role so it is important to list officers and directors by role and not by name. In the long run, it is helpful to track terms of service for each role and person.

Here is the information to track for officers and directors:

  • Type of Role: officer, director, or other (consultant, lawyer, accountant, or auditor)
  • Title: chair, director, President and CEO, Treasurer, Secretary, etc.
  • Name: first and last name
  • Start Date (term of service): date of appointment
  • End Date (term of service): date appointment ends

Please note that a person can have two different roles with different terms of service.

Ownership

Corporate owners and investors are called “Shareholders” or “Stockholders”. Ownership interests are called “stocks” or “shares”. There are several other instruments which convey ownership interests such as options, warrants, and convertible debt.

You should capture the name of the owner and the percentage of ownership at a minimum.

Conclusion

To preserve the benefits of your legal entity, effective ongoing maintenance is critical.


  1. Trends in New Business Entities: 30 years of data↩︎

  2. https://www.law.cornell.edu/wex/corporations ↩︎

  3. https://www.law.cornell.edu/wex/entity ↩︎

  4. Full text of the 2016 Model Business Corporations Act↩︎

  5. Forming a corporation↩︎

  6. Non-Profits are also called “Not-for-Profit” or “501(c)(3)”, which refers to the specific provision of the tax code for public charities. ↩︎

  7. Exceptions apply. ↩︎

  8. Exceptions apply. ↩︎

  9. Specify the government agency. ↩︎

  10. Substitute the actual expiration date. ↩︎

  11. Add the periodic cycle. There are exceptions. ↩︎

  12. 2016 Model Business Corporations Act↩︎