Broad Range of Powers
As a separate legal entity, a corporation has the power to act in any way
permitted by law and by
its own corporate charter. For example, a corporation can enter into contracts, buy and sell both real and personal property, sue and be sued, and can even be responsible for breaking the law (i.e. committing a crime).
Small Claims Court
In most jurisdictions, any officer or director
or employee can appear in small claims court on behalf of the corporation.
Separate Liability for Corporate Debts
As a separate legal entity, a corporation is
responsible for its own debts. Normally, shareholders, directors, and officers are not responsible for corporate liabilities. If the corporation suffers losses, the corporation itself must bear those losses to the extent of its own resources, and not the personal assets of the individual shareholders. In effect, however, shareholders indirectly bear these losses by a decline in the value of the stock they hold in the corporation.
Note however, that shareholders, directors, and/or officers may be held
liable for the debts of the corporation where the court imposes "alter-ego liability" or where the individual as personally guaranteed the corporate debt.
Perpetual Duration
A corporation is capable of continuing indefinitely. Its
existence is not affected by the death or incapacity of shareholders, directors, or officers of the corporation.
Duration of Corporation Compared to LLC
An LLC has a limited existence. Absent a contrary agreement, a limited
liability company (LLC)
is dissolved upon the death, withdrawal, or bankruptcy of a member unless the business is continued by unanimous vote of the remaining members. Although the operating agreement can be drafted to avoid such a result, the life of the LLC is still limited to the termination date in the Articles of Organization.
DISADVANTAGES of INCORPORATING
Corporate Formalities
A corporation can be created only by compliance with General
Corporation Law of the state of
incorporation. This usually requires filing of Articles of Incorporation with the appropriate state entity (usually the Secretary of State) and payment of the requisite state fees and taxes
A corporation is required to have a board of directors,
corporate officers, annual shareholders meetings, and to maintain separate books and records. Failure to observe such formalities may result in the personal liability of shareholders for corporate debts. However, where the corporation has only one shareholder, many states allow that one shareholder to act as director and all officers (President, Secretary, and Treasurer). |
