In a previous post, we discussed how one of the most important considerations facing any group of budding entrepreneurs is how they would like to organize their for-profit business, and how there are multiple options in this regard, including corporations, limited liability companies, limited partnerships, general partnerships and sole proprietorships.
To that end, we spent some time examining some basic background information on general partnerships and in today's post, the first in a series, we'll shift gears by examining corporations.
Formation of a corporation
When most people hear the term corporation, their thoughts inevitably turn to the corporate juggernauts that are household names owing to the ubiquity of their products and services like Apple, Nike and General Motors. Even closer to home, Utahns might associate the term with behemoths like Sinclair Oil and Overstock.com, both of which are headquartered in Salt Lake City.
While it's true that the corporation is the business organization of choice for large-scale operations, it would be inaccurate to say that this same formation option is somehow unavailable to smaller entities.
Generally speaking, all that is required to form a corporation is filing articles of incorporation with the applicable state entity -- here the Division of Corporations and Commercial Code -- along with a fee and any other requested documents. It's important to note, however, that most states set forth very precise requirements concerning the information that must be included in articles of incorporation.
Organization of a corporation
In the eyes of the law, a corporation is considered both a legal entity and legal person that exists independently of its three-tiered management structure, including directors, officers and shareholders.
The responsibility of these three parties, in turn, essentially breaks down as follows: the directors establish corporate policy and appoint officers, the officers operate the business and manage its everyday affairs, and the shareholders, who own the corporation, elect the directors and play no other role in its daily management.
As we indicated earlier, corporations can come in all sizes. As such, it's not inconceivable for a person to occupy two or even all three of these roles in a smaller corporation
We'll continue our discussion of corporations in our next post, examining the issue of liability and taxation.
Consider speaking with an experienced legal professional if you have questions or concerns about corporations or business formation in general.