June 7th 2008
Legal Requirements: Enterprise Type part 3
A corporation is owned by its stockholders. There may be one stockholder holding all the shares, or there may be millions of shareholders holding various amounts of shares. Without going into details that are far beyond the scope of a business this size, I should point out that it is also possible for corporations to sell various classes of shares with various rights and preferences. For the very small business, we can limit our discussion to two types of simple corporations: the regular, or “C” corporation, which is taxed directly by the IRS; and the “Sub S” corporation, where the earnings are passed through to the stockholders, who must pay the tax personally.
Both of these forms limit the financial exposure of the owners to their actual investment and any value in the corporation beyond that investment. This is the single greatest advantage of a corporation. However, the shareholders can lose this protection if they don’t completely separate the affairs of the corporation from their own personal affairs. They must also be certain that the amount of the original investment is clearly adequate to protect the public and the vendors from the likely activities of the corporation. Continue Reading »
