The owner of a corporation is known as the
What is a Corporation?A corporation is a business entity that is owned by its shareholder(s), who elect a board of directors to oversee the organization’s activities. The corporation is liable for the actions and finances of the business – the shareholders are not. Corporations can be for-profit, as businesses are, or not-for-profit, as charitable organizations typically are. Show Types of CorporationsThere are two major types of corporations as well: Subchapter C corporations, which are larger organizations owned by multiple shareholders, which can also be other businesses, and Subchapter S corporations, which are often (but not always) smaller businesses owned by an individual shareholder. ProsBefore creating a corporation, consider what you hope to gain from establishing this separate entity. The biggest advantages of having a corporation are:
ConsWhile corporations can certainly shield owners from liability, the downsides are sizeable and very costly:
Forming a CorporationCorporations are often formed in the state in which the business operates, but it doesn’t have to be. Some corporations are formed in states thought to be pro-business, such as Delaware or Nevada, although that creates extra paperwork. You then need to register the corporation as a foreign entity in the state in which you are doing business, and pay taxes to that state. The next step is creating Articles of Incorporation, which are filed with the state in which you have registered the corporation. These include:
And then create by-laws, which are the rules of the corporation. They include, at a minimum:
By-laws can be amended as needed once the corporation is formed. ConsiderationsIf you expect at some point in the near future to take your company public through an initial public offering (IPO), a C corporation may make a lot of sense. Though most small businesses are formed as sole proprietorships or partnerships, some small businesses choose to register as corporations. Corporations provide a number of benefits, including tax shielding and limited liability. Corporations also allow an unlimited number of stockholders, making it easier to bring in investors. Any shareholder in a corporation is a partial owner of the company. Owners are ShareholdersTo form a corporation, you must file articles of incorporation with the secretary of state in your home state or another state in which you wish to incorporate such as Nevada or Delaware. When you file, you must also designate the maximum number of shares the company is authorized to issue. Most states require that corporations issue certificates of stock to their stockholders at formation and designate a par value for the stock. BusinessDictionary.com defines a shareholder as “An individual, group, or organization that owns one or more shares in a company, and in whose name the share certificate is issued.” Hence, owners of a corporation are called shareholders or stockholders. Shareholder LimitsIn the U.S., it is legal for any corporation to have only one owner or shareholder. A privately held corporation designated as an S-corporation can have a maximum of 100 shareholders. Shareholders can be individuals, other corporations, LLCs or trusts. Corporations are separate legal entities that can exist into perpetuity, so it is important to create a shareholders agreement that governs stock ownership and what happens in the event of an owner's death or disability. Ownership LevelsCorporations may offer all shareholders the same rights and privileges based on the number of shares owned. Corporations may also create different classes of stock. Each shareholder in a particular stock class would have the same rights and privileges. For example, a corporation could create two classes of stock, preferred and common. Shareholders who own preferred stock would have first rights to dividends and distributions and more voting rights than owners holding common stock. The ability to create and offer different stock classes makes corporations an easy choice for small-business owners who wish to pursue significant investment by angel investors, venture capitalists or via private placement. Shareholder TaxationCorporations are taxed as separate, stand-alone entities, and shareholders are taxed on any distributions or dividends received from the corporation. The exception is if you specifically elect treatment as an S-corporation. The IRS treats S-corporations like partnerships. Hence, with an S-corporation, the IRS allows shareholders' proportionate share of the income or losses generated by the company to be filed on the shareholders’ federal tax returns. References Writer Bio Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania. Image Credit Digital Vision./Digital Vision/Getty Images Is a shareholder an owner?A shareholder is an owner of a company as determined by the number of shares they own. A stakeholder does not own part of the company but does have some interest in the performance of a company just like the shareholders. However, their interest may or may not involve money.
Who owns a corporation quizlet?The owners of a corporation are called stockholders.
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