Free Corporation Guide

Learn how to start your Corporation the right way! Whether you want to learn how to start your corporation yourself or hire us to form your corporation for you, you’ll find the easiest path forward with our pro tips and choices all outlined below.

What Is A Corporation?

A corporation is a legal entity that is separate and distinct from its owners. It is often referred to as a “legal person,” meaning that it has many of the same rights and responsibilities as an individual.

In a corporation, the owners are referred to as shareholders. They own the company through the purchase of shares of stock, and they elect a board of directors to manage the corporation. The board of directors hires the company’s management team to run the day-to-day operations of the business.

There are several types of corporations, including C corporations, S corporations, and nonprofit corporations. C corporations are the most common type of corporation and are taxed as separate entities. S corporations are taxed differently than C corporations, and nonprofit corporations are not taxed at all because they are organized for charitable or educational purposes.

In general, the main advantage of forming a corporation is the limited liability protection it provides to its owners. This means that the shareholders are not personally liable for the debts and obligations of the corporation. However, there are also some disadvantages to forming a corporation, including the increased complexity and cost of setting up and maintaining the business.

A corporation is created by a filing form called an Articles of Incorporation typically with your state’s Secretary of State office, or similar government agency, and paying a one-time filing fee.

The formation date of an Incorporation refers to the date on which the corporation was legally established and registered with the state in which it is located. The consequences of the formation date of a corporation can vary, but may have some potential implications in certain states such as Delaware.

History Of The Corporation

The concept of the corporation has a long history, dating back to ancient Rome. However, the modern corporation as we know it today began to emerge in the United States in the late 18th and early 19th centuries.

One of the first corporations in the United States was the Bank of North America, which was chartered by the Continental Congress in 1781. In the following decades, other corporations were formed to finance and operate infrastructure projects, such as canals and railroads.

The Industrial Revolution in the late 19th century also led to the growth of large corporations, as businesses began to mass-produce goods using assembly line techniques. This led to the emergence of “trusts,” which were groups of corporations that controlled a particular industry or market. The Sherman Antitrust Act of 1890 was passed in response to concerns about the concentration of economic power in these trusts.

Today, corporations play a central role in the economy of the United States and around the world. They are a common form of business organization and are often used to raise capital, conduct research and development, and expand operations.

What Are The Different Types Of Corporations?

There are several types of corporations, including:

1. C corporation: This is the most common type of corporation and is taxed as a separate entity from its owners. C corporations can have an unlimited number of shareholders and can issue different types of stock.
2. S corporation: This type of corporation is similar to a C corporation, but it is taxed differently. S corporations are not taxed at the corporate level, and instead, the profits and losses of the business are passed through to the shareholders, who report them on their individual tax returns. S corporations are limited to 100 shareholders and can only issue one type of stock.
3. B corporation: Also known as a benefit corporation, a B corporation is a for-profit company that is committed to achieving social and environmental goals in addition to generating profits. B corporations are recognized in some states as a distinct legal entity and are held to higher standards of transparency and accountability.
4. Nonprofit corporation: This type of corporation is organized for charitable, educational, or other types of public benefit purposes. Nonprofit corporations are not taxed on their income, and they are required to use their profits for the benefit of the organization rather than distributing them to shareholders.
5. Closely held corporation: This type of corporation is owned by a small group of individuals, often family members or business partners, who have close control over the company’s operations. Closely held corporations may be C corporations, S corporations, or some other type of business structure.
6. Statutory Close Corporation: The term “Close Corporation” or “Closed Corporation” or “Closely Held Corporation” is often used to describe a private corporation formed under regular state corporation laws where the stock is not publicly traded. This is different from a statutory close corporation, such as the Wyoming Close Corporation which is created under special state laws. A Wyoming Close Corporation is a type of business entity that is formed under the laws of the state of Wyoming. It is characterized by having a maximum 35 shareholders and providing them with greater control over the management and direction of the company. Wyoming Close Corporations offer more flexibility in terms of management structure, shareholder rights and responsibilities, and may have more relaxed regulatory requirements compared to other forms of business entities.
7. Publicly held corporation: This type of corporation is owned by a large number of shareholders and is listed on a public stock exchange. Publicly held corporations are required to follow strict disclosure and governance requirements, and they are subject to the oversight of regulatory agencies such as the Securities and Exchange Commission (SEC).

A Wyoming Close C-Corporation is a popular choice both for U.S. and Non-U.S. owner(s) / shareholder(s). Please click here to find out more about Wyoming Close Corporations.

The Effective Date Of Formation For A Corporation

The effective date of formation for a corporation is the date on which the corporation legally comes into existence. This date is typically the date on which the articles of incorporation are filed with the appropriate state agency, such as the Secretary of State.

It is important to carefully consider the effective date of formation when forming a corporation, as it can have significant legal and financial implications. The consequences of the formation date of a corporation can vary, but some potential implications may include:

1. Tax implications: The formation date of a corporation may affect the tax year in which the corporation is required to file its taxes.
2. Legal liabilities: The effective date of formation determines when the corporation’s legal liabilities and obligations begin to accrue. This means that any debts or obligations that the corporation incurs before the effective date of formation are not the responsibility of the corporation.
3. Transfer of ownership: The effective date of formation may also be relevant in the context of transferring ownership of the corporation. For example, if a shareholder sells their shares in the corporation before the effective date of formation, they may not be entitled to receive any of the corporation’s profits or assets.
4. Duration: The effective date of formation also determines the duration of the corporation. In most cases, corporations have an indefinite lifespan, unless they are dissolved by the shareholders or by the state.

On our Delaware Corporation formation forms, there is an “Effective Date of Formation” field for the date that the corporation is formed. In the state of Delaware, you can enter an effective date up to 90 days in the future for this field. The date of submission to the state will be the filing date, but the corporation’s formation will not be considered official until the effective date.

In Wyoming, the effective date of formation for a corporation does not have the same implications as it does in Delaware. In Wyoming, annual reports for corporations and LLCs are due on the first day of the anniversary month of the entity’s formation. For example, if a corporation’s initial filing date is December 30th, its annual report will be due on December 1st every year.

It is important for owner(s) of a corporation to be aware of the potential consequences of the formation date of their corporation and to consult with a legal or financial professional if they have any questions or concerns.

How A Corporation Pay Taxes?

A corporation is a separate legal entity from its owners and is taxed as such. This means that the corporation is responsible for paying its own taxes on any profits it generates.

In the United States, corporations are subject to federal income tax and may also be subject to state and local income taxes, depending on the jurisdiction in which they operate.

The tax rate for corporations is generally higher than the tax rate for individuals. In 2021, the tax rate for C corporations ranges from 15% to 21%, depending on the amount of income earned. S corporations and other types of corporations may be taxed at different rates.

Corporations may also be subject to other types of taxes, such as employment taxes and excise taxes.

In general, corporations are required to file a tax return each year, even if they do not owe any taxes. The tax return must be filed by the corporation’s tax return due date, which is typically the 15th day of the third month after the end of the corporation’s tax year.

If a corporation does not pay its taxes when they are due, it may be subject to interest and penalties. It is important for corporations to carefully manage their tax obligations to avoid financial difficulties.

Limited Liability

Limited liability is a legal concept that protects the owners of a corporation, also known as shareholders, from being personally liable for the debts and obligations of the corporation. This means that if a corporation is sued or incurs debt, the shareholders’ personal assets, such as their bank accounts and personal property, cannot be seized to pay off the debts of the corporation. The shareholders are only at risk of losing the money they have invested in the corporation, known as their capital contribution.

Limited liability is one of the main advantages of incorporating a business, as it helps to reduce the risk for business owners and makes it easier for them to secure financing. However, it is important to note that limited liability does not protect shareholders from liability for their own actions, such as fraud or gross negligence.

In a corporation, the shareholders’ personal assets, such as their homes, cars, and savings, are generally protected from the claims of creditors and other third parties.

A creditor cannot go after your personal assets

If the corporation is sued or incurs debt, the creditors can only pursue the assets of the corporation, not the personal assets of the shareholders.

However, it is important to note that limited liability is not absolute for a corporation’s shareholders. In order to maintain limited liability protection, it is important for corporation owners to follow corporate formalities, such as holding regular meetings and keeping thorough records of corporate decisions. This helps to demonstrate that the corporation is a separate entity from its owners and is being run in a professional and responsible manner.

Bylaws Of A Corporation

In a corporation, the operating agreement is typically referred to as the bylaws. The bylaws of a corporation outline the internal rules and procedures for how the corporation will be run, including the rights and responsibilities of the shareholders, the duties and powers of the board of directors and any officers of the corporation, and the process for making major business decisions.

Bylaws are an important document for any corporation, as they help to ensure that the corporation is run in a consistent and transparent manner and can serve as a reference point for resolving disputes that may arise among the shareholders. The bylaws should cover topics such as the management and administration of the corporation, the distribution of profits and losses, and the process for making major business decisions.

In some cases, the bylaws may also include provisions for handling the transfer of ownership interests in the corporation and for dissolving the corporation in the event that it is no longer viable.

The bylaws of a corporation are typically adopted by the board of directors and approved by the shareholders at the time the corporation is formed. They can also be amended by the board of directors or the shareholders as needed, provided that the necessary procedures for amending the bylaws are followed.

It is important for the shareholders of a corporation to carefully review and negotiate the terms of the bylaws, as they will have a significant impact on the operations and management of the corporation. The bylaws should be kept up to date and should be reviewed periodically to ensure that they are still relevant and reflect the current needs and goals of the corporation.