A corporation is created by statute and possesses all of the privileges, responsibilities, and rights of a natural person, including the right to due process, equal protection, and attorney-client privilege. A corporation is a legal entity separate from its officers, directors, and shareholders. It has the attributes of limited liability, centralized management, free transferability of interest, and “continuity of life,” which means it has perpetual duration despite the finite lives of its officers, shareholders, and directors. A corporation may be a party to contracts, may sue, and be sued.
The shareholders of a corporation are generally not liable for the corporation’s debts or other liabilities, including tort liabilities. However, in order to protect shareholders against personal liability it is necessary to observe carefully the corporate formalities, including filing Articles of Incorporation with the Pennsylvania Department of State, adopting by-laws, electing directors, maintaining the separate identity of the corporation, and maintaining separate records and bank accounts. There are also certain advertising requirements required by law, meaning that the corporation must publish either the intent to file or the actual filing of Articles of Incorporation in two newspapers of general circulation. The advertisements are required to contain the name of the corporation and a statement that the corporation is to be or has been organized under the provisions of the Business Corporation Law of 1988.
A small business corporation may elect for tax purposes Subchapter S of the Internal Revenue Code, i.e., “S corporation.” The shareholders of an S corporation must be U.S. citizens or residents, estates, or simple trusts, and there is a limit on the number of shareholders. One of the advantages of an S corporation is double tax avoidance, i.e., one tax at the corporate level and another at the taxpayer level. The corporation files tax returns, but will pass through its profit or loss to its individual shareholders without a corporate level tax.
Because there are a number of advantages and disadvantages to selecting any form of business entity, it is important to discuss the structure of the business with an attorney before making such decisions. If we can be of assistance, please give us a call.
— Denise Ciampitti