A corporation is a framework for conducting modern business. It is created under the laws of a state to carry on some business or other authorized activity separate from its owners. Common features of a corporation include limited liability of the owners, issuance of stock in evidence of ownership, election of directors and officers by vote of shareholders and taxation of the corporation separate to that of the owners.
The primary advantage of for profit corporations is that it provides its shareholders with a right to participate in the profits without any personal liability because the company absorbs the entire liability of the organization.
Unlike an individual, a corporation has an independent perpetual existence and therefore can outlive its original shareholders.
Corporations are managed and supervised by its board of directors. The Board of Directors is essentially the management body for the corporation. Responsibilities of the Board of Directors include establishing all business policies and approving major contracts and undertakings. In addition, the Board may also elect the officers of the corporation such as the "President", "Vice-President", "Treasurer" and "Secretary". Ordinary business practices of the corporation are carried out by the Officers and employees under the directives and supervision of these Directors.
Generally, the authority and responsibilities of each officer is described in the corporate bylaws and may be further defined by an employment contract or job description. A corporation may have additional officers but the required officers are:
The President has the overall executive responsibility for the management of the corporation and is directly responsible for carrying out the orders of the board of directors;
The Treasurer is the chief financial officer of the corporation and is responsible for controlling and recording its finances and maintaining corporate bank accounts. Actual fiscal policy of the corporation may rest with the Board of Directors and be largely controlled by the president on a day-to-day basis; and
The Secretary is typically responsible for maintaining the corporate records.
Despite the different titles, one person may serve in all three capacities. However, the person's responsibility and authority changes through the different titles the person accepts. For example, the President is typically responsible for entering into contracts on behalf of the corporation, the Treasurer is responsible for maintaining and accounting for corporate funds, and the Secretary is responsible for observing corporate formalities and maintaining corporate records.
The process involved in forming a corporation is referred to as "incorporation." Incorporating involves completing and filing a "Certificate of Incorporation" or "Articles of Incorporation" with the Secretary of State, paying a share fee and a filing fee.
Once the proper documentation is approved and filed the corporation comes into existence. Once your corporation is formed, you must comply with corporate formalities. These formalities include holding annual meetings of directors and shareholders, adopting bylaws, and issuing shares of stock. Your attorney can assist in specifying the terms of the parties relationship while complying with corporate formalities.
Corporate formalities must be followed to maintain the protection of limited liability. Limited liability safeguards the personal assets of the owners, as shareholders of the corporation, against potential claims of creditors Failure to maintain the corporation's legal status properly creates the danger that you and not your corporation be held solely responsible against potential claims of creditors and other obligations.