The Basics of Company Formation and Business Basics – Part 2

A business is defined by Wikipedia as an unincorporated commercial enterprise or company which carries on specific commercial activities for profit. A business may be either for-profit or non-profitable organizations that conduct primarily to meet a social purpose or further an educational mission. The activities of a business are governed by a set code of conduct established by the company’s Board of Directors, officers, management and shareholders. Businesses are generally seen as a separate unit separate from the owners, who hold the majority share of ownership.

Many businesses today incorporate to protect themselves against liability that may arise through employee actions. Forming a corporation is one way for companies to avoid being subjected to lawsuits. Business structures such as limited liability and partnership also protect the owners from personal losses that may occur as a result of the businesses’ activities. Other methods of incorporating businesses exist, including sole proprietorships, partnerships, general partnerships, and corporations. Many businesses that choose to incorporate do so to create a separate legal entity that limits their liability and provides assurances that their activities will not be exposed to the actions of other parties.

A corporation may be any corporation duly registered and operating under the law. To incorporate a corporation, there must be a legal body such as the US Chamber of Commerce or a Supreme Court ruling called Citizens’ Initiated Order. Once a business has been incorporated, it is maintained as a legal entity separate from its owners. The primary purpose of a corporation is to limit personal liability for lawsuits arising through actions by the corporation. Corporations are considered to be separate legal entities from their owners.

The shareholders of a corporation form a majority share of that entity. Each shareholder receives a share of the company’s profits in return for his or her shares in the corporation. The company is generally led by a president and a board of directors. When a company chooses to issue more stock than it can safely sell, the shareholders vote to make an initial share capital deposit (more commonly known as a startup deposit) to the company.

Stock certificates are issued to both the shareholders of record and to other named individuals on an annual basis by the state’s stock exchange. To conduct business in the United States, a company must register with the state as a corporation or in some states, must file Articles of Organization with the state’s business authority. In this process, the shareholders generally sign one of many authorizations known as stock instruments which grant the corporation the right to issue securities and/or shares.

Businesses incorporate to further separate themselves from personal liability and assets. To do so, they use either a limited liability corporation (or LLC) or a corporation (or LLC). A limited liability corporation is a separate legal entity from its owners, whereas a corporation is considered a joint venture by its shareholders. In a corporation, all shareholders are jointly and severally liable for the company’s debts. However, unlike a limited liability company, the company does not have to pay taxes on its income or dividends unless it has enough money to pay those taxes. It can also issue stock without first becoming a public company.