The corporation

Many consider the corporation the ideal way to organize a business. By law, the person or persons who own and operate the corporation are separate from it.

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The corporation may be small or large. A small corporation is usually referred to as a close, or closely held, corporation. An individual may own all the stock in such a corporation and manage it alone or jointly with a few others.

But many corporations have hundreds or thousands of shareholders or stockholders. In either case the corporation files its own tax returns and pays its own taxes.

Corporate meetings must be held and minutes kept for each meeting. To do business under an assumed name, the corporation – like the sole proprietorship or the partnership – must register according to state law.

The corporation, as a flexible form of business organization, generally has the following advantages:

– The persons who invest in the corporation have no liability for corporate debts or obligations beyond the amount each has invested.

– By selling stock and securities the corporation can raise substantial sums to finance business programs and projects.

– By corporate charter, the corporation can exist “in perpetuity” – in effect, forever.

– Because the typical corporation of any size has a manager or board of directors who run day-to-day operations, the individual shareholders need not bother with the details of such operations.

The corporate format does have some disadvantages. For example, the corporation may pay taxes on its earnings. Later, when these earnings are distributed to shareholders as dividends, the shareholders must claim them in their own tax returns and pay additional taxes on them.

Careful planning, however, can reduce or eliminate the hazards of such “double taxation”. And many corporations find ways to enjoy other major tax advantages.

Another disadvantage of the corporation is that, as a separate legal entity, it must operate in accordance with specific laws and keep certain records. Some expense is involved in incorporating, and an application for a corporate charter must be accompanied by initial tax statements and other documentation in addition to the necessary filing fees.

Two other kinds of corporations or corporation-like business structures should be noted: the Subchapter S corporation and the business trust.

Subchapter S Corporation

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The unique advantage of the Subchapter S structure is that such a business may operate as a corporation while following partnership tax regulations. This type of business organization, permitted under federal and most state laws, thus avoid corporate taxes while operating in corporate form.

All the income or losses of a Subchapter S corporation are taxed individually according to the amount invested by each shareholder. The shareholders have immunity from personal liability for the debts and obligations of the firm. At the same time they avoid double taxation. But a “Sub-S” corporation can have no more than 35 shareholders.

The Business Trust

The business trust is taxed as a corporation and enjoys many of the advantages of a corporation. It can be formed and operated under federal and most state tax laws.

The death or withdrawal of a shareholder does not terminate the trust, nor do the shareholders have personal liability for the trust’s debts and obligations. Also known as a Massachusetts trust or a common trust, the business trust has been defined as an unincorporated business organization. The trust document specifies that property is to be held and managed by the trustee for the benefit of beneficiaries who hold transferable certificates. The beneficiaries receive the profits from management of the property.

The states that provide for the legal creation of business trusts generally require that a declaration of trust be filed before beneficiaries’ shares can be sold or distributed. Transfers or sales of trust shares must take place in accordance with the securities laws of the various states.

УЧЕБНЫЙ ЭЛЕМЕНТ 2 (УЭ-2) LAUNCHING A BUSINESS