Corporation

A corporation is a legal entity which has a separate legal personality from its members.  The defining legal rights and obligations of the corporation are: (i) the ability to sue and be sued; (ii) the ability to hold assets in its own name; (iii) the ability to hire agents; (iv) the ability to sign contracts; and (v) the ability to make by-laws, which govern its internal affairs.  Other legal rights and obligations may be assigned to the corporation by governments or courts.  The legal personality has two economic implications. First it grants creditors priority over the corporate assets upon liquidation. Second, corporate assets cannot be withdrawn by its shareholders, nor can the assets of the firm be taken by personal creditors of its shareholders.

Legal Characteristics

Currently, the modern business corporation is the dominant type of corporation. In addition to its legal personality, the modern business corporation has at least three other legal characteristics: (i) transferable shares (shareholders can change without affecting its status as a legal entity), (ii) perpetual succession capacity (its possible continued existence despite shareholders' death or withdrawal), and (iii) limited liability (including, but not limited to: the shareholders' limited responsibility for corporate debt, insulation from judgments against the corporation, shareholders' amnesty from criminal actions of the corporation, and, in some jurisdictions, limited liability for corporate officers and directors from criminal acts by the corporation. 

Limited Liability
 
Unlike in a partnership or sole proprietorship, shareholders of a modern business corporation have "limited" liability for the corporation's debts and obligations. As a result their potential losses cannot exceed the amount which they contributed to the corporation as dues or paid for shares. Limited liability regulations enable corporations to socialize their costs for the primary benefit of shareholders.

Perpetual Lifetime

Another favorable regulation, the assets and structure of the corporation exist beyond the lifetime of any of its shareholders, bondholders, or employees. This allows for stability and accumulation of capital, which thus becomes available for investment in projects of a larger size and over a longer term than if the corporate assets remained subject to dissolution and distribution.

Formation

Generally, a corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors. Once the articles are approved, the corporation's directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions.

Jurisdiction

The law of the jurisdiction in which a corporation operates will regulate most of its internal activities, as well as its finances. If a corporation operates outside its home state, it is often required to register with other governments as a foreign corporation, and is almost always subject to laws of its host state pertaining to employment, crimes, contracts, civil actions, and the like.

Ownership & Control

The shareholders, who can be either individuals or other legal entities, are the owners of the corporation.  Control of the corporation is determined by a board of directors which is elected by the shareholders.  In turn, the directors appoint the officers and managers who are responsible for the day-to-day operations of the company.  In many jurisdictions the Secretary of State requires the appointment of the president, secretary and treasurer in the articles of incorporation.

Corporate Taxation

In many countries, including the United States, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate. Such a system is sometimes referred to as "double taxation", because any profits distributed to shareholders will eventually be taxed twice.

California Governance

The Secretary of State serves as the custodian of records for corporate records filed with this office. The Business Entities Section is responsible for: (i) examining, processing, filing and maintaining documents relating to the formation of California (domestic) corporations, the qualification of foreign (out of state or country) corporations to transact business in California, and any amendments to the records of the domestic or qualified foreign corporations; (ii) responding to inquiries relating to status or other information concerning corporations of record; (iii) providing certificates (of status or filing) and copies of corporate documents upon request; and
receiving and processing substituted service of process.

General provisions governing most corporations are found in the California Corporations Code commencing with sections 100 (domestic stock corporations), 5110 (domestic nonprofit public benefit corporations), 7110 (domestic nonprofit mutual benefit corporations), 9110 (domestic nonprofit religious corporations) and 2100 (foreign (out of state or country) corporations).

How We Serve Our Clients

With our experience working with entrepeneurs to establish new businesses we will guide you through the process of forming a new company, assisting you in choosing the appropriate legal structure and explaining the advantages of each for your particular enterprise.  After the business is established, our attorneys will be at your disposal to answer general legal questions when they arise.  Our clients also call on us to assist them during transitional periods, raising capital, locating venture partners, merging, selling, and closing a business.