So You Want to Start a Corporation?

By Tom Loonan | Business Law

When discussing common business entity formation, a corporation is the most formal and the most complex entity to form and operate.

A corporation is formed by the filing of articles of corporation with the state. The shareholders of the corporation will approve by-laws governing the entity operations and may also execute a shareholder agreement specifying the relationship between each other that is not contemplated in the by-laws. Upon formation the corporation must select its board of directors who are responsible for the management of the entity in accordance with the by-laws.

Corporations are legal entities with their own identity and tax structure separate from the shareholders. As a separate legal entity the corporation provides a personal liability shield to its individual shareholders. Corporations are the most formal of private business entities requiring strict adherence to those formalities in order to ensure the tax benefits and liability protections will be duly recognized.

With regard to the corporate tax liability there are two separate structures: S-CORP and C-CORP. The c-corporation must pay taxes for the corporate profits and each of the shareholders are taxed on the dividends they receive from the entity. The s-corporation allows for pass through taxation meaning that the entity profits and losses pass through to its shareholders who file on their own personal returns, there is no corporate level taxation for s-corps.

Contact us today if you have questions regarding the formation of this type of business entity or other business entities.

You can also call our Stillwater, MN office at 651-439-2878 or Hudson, WI office at 715-386-3733.

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