The Different Types Of Corporate Entities
A business is basically an entity where people interact together. In a business, individuals work collectively to create and sale products or services. Others purchase the same goods and services from the firm. In most cases, the firm owns the entire business. The business can make a profit from the goods and services it sells. However, if a business operates on a sole proprietorship basis, the business is considered a partnership, and in that case, there is only one owner, called the principal.
The structure of a business is similar to how society was organized in capitalism. A corporation is considered to be a separate and distinct legal entity from its shareholders and creditors. A corporation may be established by writing an operating agreement or by having the members of the corporation agree to establish such an entity. In America, this form of business structure is referred to as “limited liability corporation.”
A corporation has limited liability and is not personally liable for the debts of its stockholders unless it is able to show that the directors did not take reasonable care in failing to carry out their responsibilities in the course of their conduct. Limited liability means that the corporation is able to meet its financial obligations at the expense of its shareholders or creditors. It does not, however, extend the personal liability of its directors. In order to qualify as a corporation, it must also be registered under the Commercial Law; all corporations need this status to transact business in public. All commercial law jurisdictions require that a corporation meet a minimum number of shareholders before it can issue shares of stock.
A separate legal entity does not have limited liability. Instead, it can have separate ownership and management by one shareholder. This shareholder is not personally liable for the debts of the corporation unless he has direct or indirect control or possession of the corporation’s property or assets. If he owns more than 25% of the shares, he is considered to be the absolute owner of the corporation and is responsible for all of the corporation’s debts.
Many business entities use the separate legal entity model in order to sidestep various laws that might otherwise apply to them if they were treated as one entity. For example, the IRS often uses the separate liability model when it comes to corporations. In addition, most corporate tax attorneys use the separate legal entity model to argue their cases with the IRS. For example, if a corporation files an annual report which contains its financial information, the individual shareholders will most likely be individually liable for part of the corporation’s income taxes. However, if the corporation files a special form with the IRS which exempts the main article from taxation, then all of the shareholders will be individually liable for their portion of the corporation’s income tax.
Limited liability corporations are often used as a way of giving business entities more protection from lawsuits. However, the IRS has made some changes recently that may affect these types of business structures. Recently, the IRS started requiring that corporations filing Form 1040 reports include a clause which states that only the owners of the corporation are subject to the corporation’s liability. If a lawsuit were to arise against a corporation, the owners of the business entity would be individually liable for their portion of the damages.