The corporate form has become common method for many business organizations. Its separate entity legal standing provides substantial degree of financial protection for its investors. Prior to the creation of the corporate form of business organization, investors in a business were liable for all of the debts the organization. If the business lost money and didn't have the cash to pay its creditors, the partners had to make up the difference with their own money. Corporations now shield the investor from unlimited downside risk. The corporate form created an environment in which more people were willing to invest in business ventures.

In this section we will outline some of the comparative issues relating to a variety of organizational structures. The information contained within this document is general information found in most college business textbooks. It should not be construed as legal advice as to what form of organization is best for your firm. We provide this information so that you can be aware of some of the issues relating to organizational structure when you discuss your needs with a professional advisor. On these pages you will find we have outlined some of the advantages, disadvantages of corporations,and how they compare to other business entities, including the limited liability company (otherwise known as an LLC).

A corporation is a separate and distinct legal entity. Corporations can open bank accounts, own property and do business, all under its own name. The primary advantage of a corporation is that its owners, known as stockholders or shareholders, are not personally liable for the debts and liabilities of the corporation. If a corporation gets sued and is forced into bankruptcy, the maximum risk to the investor is the loss of his/her investment. The owners will not be required to pay the debts of the firm with their own money. If, upon liquidation of the assets, the corporation still cannot pay all of its obligations, creditors cannot legally collect what is due to them from the shareholders, directors or officers of the corporation to recover any shortfall unless the debt was personally guaranteed by shareholder, director or officer or fraud is proven. Recent events involving accounting practices that created false perceptions of revenues and profits that were attributed to officers of some of worlds largest organizations illustrate the fact that their is no absolute protection for decision makers through the corporate shield. Owners of small business corporations often find themselves having to personally guarantee a bank loan for the firm as a condition of the loan agreement.

The life of a corporation begins upon the filing of articles of incorporation with the secretary of state's office. Before filing the articles of incorporation, you may wish to consider the state in which you plan to create the corporation.

You can incorporate in any of the 50 states. Despite the state's size, there are many Delaware corporations. Delaware is often chosen because Delaware offers some significant advantages relative to most other states. Over half of the companies listed on the New York Stock Exchange are incorporated in Delaware. Nevada is also popular due to its pro-business environment and lack of a formal information-sharing agreement with the IRS. Neither Delaware nor Nevada have corporate income taxes, and business filings in these states can usually be performed more quickly than in other states.

Many people still choose to incorporate in their home state. Doing so may save you money because corporations are required to register as a "foreign corporation" in each state where they do business, and there is often no need to pay another person to serve as the registered agent. For example, a Delaware corporation that has its main business office in Texas must register as a "foreign corporation" with the Texas Secretary of State.

If your home state has a high corporate income tax or high state fee, and your corporation will not "do business" in the home state, it may be wise to incorporate elsewhere. "Doing business" means more than just selling products or making passive investments in that state. It usually requires occupying an office or otherwise having an active business presence.

Tax forms and licenses

Every corporation must obtain a federal tax identification number, which is similar to an individual's social security number. Some states also require a separate state tax number. In addition, county and city business licenses may be required. Check with your city and county to see which types of licenses you need.

Choosing a name

In general, the name of a corporation must end with "incorporated," "corporation," "corp" or "Inc." A name will not be accepted if it is likely to mislead the public or if it too closely resembles the name of another corporation formed in that state.

You may wish to secure federal trademark protection for your name. Your name can become synonymous with your "brand", and brand recognition adds value to your firm. What do you suppose the name Coca Cola is worth? Federal trademark protection for your name protects you from others trying to capitalize on your "good name" by ensuring that no one else in the U.S. may use that name in connection with the same general type of goods or services (except in areas where someone else is already using that name).

Registered Agent

Every corporation must have a registered agent. The resident agent is an individual designated to receive official state correspondence and notice if the corporation is "served" with a lawsuit. The registered agent must be either (1) an adult living in the state of formation with a street address (P.O. boxes are not acceptable) or (2) a corporation with a business office in the state of formation which provides registered agent services.

One of the advantages of forming a corporation in your home state is that any officer or director can act as the registered agent. However, there are some advantages to having a third party represent your firm as its registered agent. First, an extra layer of privacy is added, because the name and address of the registered agent is publicly available. Additionally, if your corporation is named in a lawsuit, no one will surprise you at home with court papers.

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