A corporation has perpetual existence as a legal entity that is separate from its owners. A corporation’s owners are called shareholders. In general, shareholders are free to sell their shares if they do not violate securities laws, the articles of incorporation, or corporate bylaws. In general, shareholders are not personally liable for the corporation’s debts and usually do not participate in the corporation’s daily operations. Instead, the shareholders elect a board of directors who, in turn, select and supervise corporate officers (CEOs, CFOs, etc.) who are responsible for managing the corporation’s daily operations.
Corporations also have some disadvantages, the biggest of which is “double taxation.” A corporation is first taxed at the corporate level, and then it is taxed again at the shareholder level when the corporation pays dividends to its shareholders. However, it is possible for qualifying small business corporations to avoid double taxation by making an election to be taxed as an “S corporation.” Additionally, a corporation must maintain all corporate formalities in compliance with the entity’s governing documents and statutes.
In most states, including Colorado, incorporation is a clear-cut process that requires certain documents to be filed with the appropriate state authority. In Colorado, the corporation’s existence as a legal entity begins when articles of incorporation have been filed with the Colorado Secretary of State and the required filing fee has been paid. Bylaws should also be drafted to govern a corporation’s internal affairs.
HOW WE CAN HELP
Dennis M. Lanphier, Esq., CPA, LL.M., is an experienced business attorney and certified public accountant who can help you determine whether a corporation is the most appropriate entity for your business and assist you in drafting and filing the appropriate documents to organize your corporation.