U.S. Business Formation

Business Formation

Legal Status

The law typically views a corporation as a fictional person rather than a natural person. In this United States the law recognizes this as corporate personhood. Under this doctrine a corporation enjoys may of the rights and obligations of individual persons, such as the right to own property, sign binding contracts, pay taxes, have certain constitutional rights and otherwise participate in society.

A partnership or sole propriotorship operate as the natural person or persons and the owner(s) are fully liable for the actions, debts and obligations of their company. Unlike in a partnership or sole proprietorship, members of a corporation hold no liability for the corporation’s debts or obligations. Under this “limited liability” potential losses cannot exceed the amount that they contributed to the corporation as dues or paid for shares.

Corporations also have “perpetual lifetime”. The assets and structure of the corporation exist beyond the lifetime and any of its members or agents. This allows for stability and accumulation of capital.

Formation

Corporations are usually registered with the state or federal government and are regulated by the laws enacted by that government. Registration is the main prerequisite to the corporation’s assumption of limited liability. As part of this registration, it must designate the principal address of the corporation (where to contact in the event of legal process) and often an agent or other legal representative of the organization.

Generally, a corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue and the names and addresses of directors. Once the articles are approved, the corporation’s directors meets to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions.

The law of the jurisdiction in which the corporation operates will regulate most of its internal activities, as well as its finances.

Naming

Corporations generally have a distinct name. In most jurisdictions it is necessary to do a name search to make sure that the chosen name of the corporation is unique. An application for a name can be rejected if it is to close to the name of another corporation and would potentially be confusing.

Forming a C Corporation

Choose an available business name that complies with your state's corporation rules.
Appoint the initial directors of your corporation.
File formal paperwork, usually called "articles of incorporation," and pay a filing fee that ranges from $100 to $800, depending on the state where you incorporate.
Create corporate "bylaws," which lay out the operating rules for your corporation.
Hold the first meeting of the board of directors.
Issue stock certificates to the initial owners (shareholders) of the corporation.
Obtain licenses and permits that may be required for your business.

Nonprofit Organizations

A nonprofit organization is an organization whose primary objective is to support some issue or matter of private interest or public concern for non-commercial purposes. Nonprofits may be involved in an innumerable range of areas relating to the arts, charities, education, politics, religion, research or some other endeavor.

Most experts consider that it is the legal and ethical restrictions on the distribution of profits to owners or shareholders that fundamentally distinguishes nonprofits from commercial enterprises. Nonprofits generally do not operate to generate profit, a characteristic widely considered to be the defining characteristic of such organizations. The extent to which it can generate income may be constrained or the use of those profits may be restricted. Nonprofits therefore are typically funded by donations from the private or public sector and often have tax-exempt status. Additionally, a nonprofit organization may have members as opposed to shareholders.