A corporation is established pursuant to state law as a business entity that exists separate and distinct from its individual owner(s), who are called shareholders. Shareholders possess “shares” of ownership in the corporation, which may entitle the shareholder to a distribution in the company’s profits, to certain voting rights in decision-making processes and to other distributions if the corporate entity were to dissolve. As well, shareholders elect directors to serve on a board for a specified term. The board of directors oversees and enacts major decisions on behalf of the corporation. The board, in turn, selects officers to oversee the day-to-day management of the corporate business.
As separate and distinct from its owners, the corporate entity provides a layer of liability protection between the shareholders and the entity itself so long as the entity maintains what are known as “corporate formalities.” These formalities must be strictly adhered to throughout the corporation’s existence to maintain the veil of protection that corporate shareholders expect when investing in a corporation.
The components of the corporate structure highlighted above provide only a general sketch of what it takes to maintain and operate a corporate entity. This process should not be taken lightly and should be entered into with competent legal and tax advice. Our experienced attorneys and tax consultants can provide the advice needed as to the best use of a corporate entity.