Corporation
A corporation is a type of company which has been around for many years. A corporation operates under the laws in South Carolina.
Ownership and operation
The owners of a corporation are called stockholders or shareholders because their ownership is represented by a number of shares of stock issued.
Under previous laws, each share of stock had a “par value” which represented its minimum value, usually the amount initially paid for the stock when it was originally issued. A South Carolina corporation no longer has a par value as the initial value of the stock is determined by the shareholders or the Board of Directors.
The typical corporation will have a definite hierarchy of responsibilities. The shareholders are required to approve certain changes to the corporation, but the major duty is to elect a Board of Directors. The Board of Directors is charged with the overall operations and management of the corporation. The Board of Directors will then appoint and hire officers who will handle the day-to-day operations of the company and who may hire other employees.
If the corporation is a Statutory Close Corporation, the shareholders may elect to not have a Board of Directors, in which case the shareholders would assume the duties of the Board.
Creation
A corporation is created by filing the properly completed Articles of Incorporation with the Secretary of State. An attorney is required by State law to sign the Articles of Incorporation.
There are four types of corporations, each of which is governed by a separate set of laws. Several of these laws may be “opted-out” by the corporation in its Articles of Incorporation and in its bylaws. If there is more than one owner, it is always wise for the owners to have a buy-sell agreement between them. This agreement specifies how the stock may be sold to others and what happens when one of the owners should leave the company, become unable to work, or die.
A corporation has a perpetual existence.
Taxation
The IRS has two main tax classifications for corporations. If no election is made, the company will be taxed under Subchapter “C.” This tax identity requires that the profit of the corporation be taxed to the corporation and not to the owners. However, if the owners should pay themselves a dividend, that payment will also be taxed to the owners, which results in double taxation on those funds.
If properly elected, a corporation may be taxed as a Subchapter “S” corporation. For a corporation to be taxed as an “S” corporation, it must meet certain requirements. These qualifications currently are that it must be a valid corporation under South Carolina law, it may have only one class of stock, it may not have more than 100 shareholders, the shareholders must be US citizens or residents and must be real people (none of the shareholders can be an LLC or another corporation with some limitations), and the profits and losses must be allocated to the owners based on stock ownership.
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