A corporation is a separate legal business form and its legal obligations and tax status is separate from its owners. . Articles of incorporation are filed with a state agency. The corporation is governed by a set of by-laws, regular meetings must be held. Shareholders elect or choose a board of directors to manage the business for them. It can provide shareholders some protection against creditors of the corporation but not is all instances. The corporate creditors cannot attach the shareholders assets that are not invested in the business but there is a price to pay for this. A regular corporation is taxed as if a separate person and the shareholders receive only the earnings of the corporation after the corporation has paid the taxes. For the small corporation it is possible to minimize or eliminate these taxes by paying employee-owners a salary, which is a legitimate business expense and is tax deductible.
The advantages of a corporation include the ability to transfer or sell ones shares; upon the death of one of the shareholders the corporation continues to exist. It is most appropriate for a company that plans to have more than 30 stockholders or to trade publicly. The record keeping requirements must be maintained to insure the corporation continues to have its limitation of liability status. It can be costly to set up a corporation and corporation funds must not be mixed with personal money. If the corporation has a net loss the shareholders are not able to claim this loss on their personal tax returns. The corporation pays taxes on its profits and the shareholder must pay taxes on the dividends they receive.