Corporations And Limited Liability Companies
What Is A Corporation?
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A corporation is a legal entity that has its own rights, powers, privileges and liabilities governed by the state in which it is incorporated. It is separate from its owners.
The life of a corporation can be perpetual.
The life of its owners is not relevant. If a shareholder becomes incapacitated or dies, it does not affect the business or duration of the corporation.
Owners of a corporation are shielded from personal liability for the actions of the corporation. For example, owners are not individually liable for debts of the corporation, such as a lease obligation or loan payback.
Owners of a corporation are generally referred to as shareholders or stockholders. They in turn appoint a board of directors to oversee the business of the corporation. The board of directors appoints the officers who actually run the entity on a day-to-day basis.
For tax purposes, there are different types of corporate entities.
- C-corporations are taxed as a separate entity, at corporate rates. The shareholders are then taxed at their individual rate on any dividends they receive.
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An S-corporation is only taxed once: to shareholders at their individual rates. Shareholders pay taxes on all profits earned, whether the profits were distributed as dividends or not.
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