By Mark Oldberg: October 5, 2017: Video

 

 

 

Corporations are the most complicated form of business. A corporation is where the owners (referred to as “shareholders”) have passive control of the business. This means they do not manage day to day operations. Think of a big company like Coca-Cola. If you own 1 share of Coca-cola stock, you aren’t there telling them what new drinks to make or where to build the bottling plant. No, but as a shareholder you do have a say in who is elected as a director of the company. Directors provide oversight of the company and appoint the officers. So a corporate structure looks something like this.

You have the owners of the business at the top, the shareholders. The shareholders elect the directors who oversee the actual running of the business, who then appoint the officers (like CEO, CFO) to run the day to day operations of the business.

Now if someone owns enough shares of stock, all three of these levels could be occupied by the same person or people. So if you own 50% + 1 share of stock you could appoint yourself director along with other friendly directors who will name you CEO. And if they don’t name you, you can remove them.

Corporations have the advantage of limited liability and it can make broad outside investment easier, but as you see above it can get complicated. There are a lot more formalities required in corporations. You have to worry about issuing stock, enacting bylaws, holding shareholder and director meetings as well as making sure you have minutes of those meetings. Also C-Corporations are subject to double taxation. This means that corporations have to file their own tax returns and must pay corporate taxes. Then when you distribute any left over money to yourself, it is taxed again. That is, unless you are an S-Corporation. See how complicated it can get?

 

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• Forming a Business
• Choosing a Business Entity