WHAT IS A CORPORATION?A corporation is a legal entity that can exist separately from its owners. While there are several types of corporations, the first step toward creating a corporation occurs when properly completed articles of incorporation are filed with the Oregon Secretary of State, and all fees are paid. What paperwork is required to incorporate? Articles of incorporation conforming to state law must be prepared and filed with Oregon Secretary of State and filing fees must be paid. Other documents required are:
Choose the name of your corporation carefully. It is very important that you portray the image you want for your new corporation. Legally, the name you select must not be "deceptively similar" to any existing corporation or must be "distinguishable on the record" of Oregon Secretary of State. It is possible that the name you select will not be available; therefore, we ask to have alternate names. Additionally, the name you choose must show your business is incorporated. Oregon requires that the corporate name be followed by some type of indicator, such as Corporation, Incorporated, or an abbreviation. What are the advantages of incorporation? One of the primary advantages of incorporation is the limited liability the corporate entity affords its shareholders. According to business laws, shareholders and directors are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder or director to pay debts of the corporation. In a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business. Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes. Other advantages:
The primary disadvantage of a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax, as laid out in business laws. Further, the double tax can be eliminated by making an S corporation election. Other disadvantages:
Various types of corporations, including standard business corporations or C corporations, are required to pay income tax on taxable income generated by the corporation. Making a subchapter S election by completing and filing federal Form 2553 with the IRS is a way to avoid having your corporation treated as a separately taxable entity. An S corporation is a standard business corporation that has elected a special tax status with the IRS. This tax treatment allows the corporation not to be a separately taxable entity. Instead, the income of the corporation is treated like the income of a partnership or sole proprietorship; the income is "passed-through" to the shareholders. Thus, shareholder's individual tax returns report the income or loss generated by an S corporation. To be classified as an S corporation, a corporation must make a timely filing of Form 2553 to the IRS. This election must be made by March 15 if the corporation is a calendar year taxpayer, in order for the election to take effect for the current tax year. A corporation may later decide to elect S corporation status, but this decision would not take effect until the following year. In order to qualify for S corporation status, the S corporation can have no more than 100 shareholders and must make the election to be an S corporation. The shareholders cannot be non-resident aliens. Also, an S corporation cannot issue preferred shares of stock with special liquidation, dividend, or conversion rights. What is the organizational structure of a corporation? Regardless of the types of corporations, the organizational structure relies on three basic groups: shareholders, directors, and officers. A corporation is owned by shareholders; however, they do not directly manage the corporation. Instead, they influence corporate decisions through indirect methods such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on major corporate issues. The directors, who comprise the "board of directors," are responsible for managing the affairs of the corporation. Usually, directors make only the major business decisions and supervise and appoint the officers who make the day-to-day business decisions of the corporation. Officers are responsible for the everyday management of the corporation. Typically in all types of corporations, officers are appointed directly by the board of directors. It is important to note that a shareholder may serve on the board of directors and as an officer. In fact, according to Oregon's business laws one person is enough to form a corporation. |
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