Unlike sole proprietorships and partnerships Corporations are separate business entities, they are not an extension of their owners. Corporations are normally created by the state at the request of one or more people.

A corporation is owned by its shareholders, shareholders can be individuals, other corporations, or any other type of business entity. Your share or ownership in a corporation is determined by the amount of shares you own. Given the structure of a corporation you can give the employees part of the business by giving shares in the business (stock option). Giving the employees shares in the business can be very good of increasing their loyalty and keenness to work. You can also raise public money if the corporation goes public and its shares are sold to the public on the stock market. The structure of a corporation allows easy transfer of ownership, the transfer of ownership is accomplished by one shareholder selling his or her shares to another person or business entity.

Generally speaking, the owners or shareholders of a corporation are not liable for the corporation’s debt beyond what they have invested or promised to invest. This is because a corporation is a separate business entity not linked to owners or shareholders. However, it is sometimes the case, especially for small corporations, banks will ask the owners or the major shareholders to personally guarantee loans made to the corporation. In this case the owners or major shareholders are personally liable to pay the bank loan if the corporation is unable to fulfill its obligations.

The amount of money you invest in a corporation translates into how many shares you bought in the corporation. Normally, the amount of investment made in a corporation is limited to how many shares the corporation is authorized to issue. You can invest as much as you want in a corporation providing you find shares to buy.

Normally in large corporations the shareholders do not run the business, instead they elect the board of directors. The board of directors is then responsible for appointing managers (corporate officers) to run the business, the managers (corporate officers) include: the president, vice-president, secretary and treasurer. In small corporations sometimes the shareholders or the owners run the business without the formal board of directors. The number of directors on the board varies depending on the business and its size, however most states require at least one director. When trying to decided on the number of directors, remember too many directors will make it more difficult to reach decisions. For a small business it is a good idea to keep the number of directors to a small group. Often, directors are the shareholders and officers.

As corporations do business they generate income. This income is taxed according to the corporate income tax laws and the money left after corporate tax is deducted is then distributed to the shareholders as dividend. The dividend is again taxed as income to individual shareholders on their tax return. This is the infamous double taxation scenario with corporations in which income is not passed directly onto the owners, instead “the IRS takes two bites of the cake” before being touched by the shareholders (owners). Some small business shareholders (owners) address the double taxation problem by paying themselves high salaries and therefore leaving their C-corporation without income, however this policy may be questioned by the IRS if the salaries too high and outside the normal range of salaries for a similar job.

As a corporation you can offer your employees and stockholders tax-deductible benefits such as:

• Retirement plans.
• Savings plans.
• Medical coverage

• A corporation is a separate business entity and typically owners are liable for business debts.
• Ease of ownership transfer.

• The double taxation.
• Business formalities such as annual meetings.