A corporation is a separate and distinct legal entity under the law. A corporation is established by filing a Certificate of Incorporation, which an incorporator or the shareholders generally submit.  

The shareholders vote for the members of the board of directors. The board members hire the Chief Executive Officer (CEO) to oversee all aspects of running the company. 

Some of the critical characteristics of a corporation:

  • Double Taxation. A corporation is, by default, a “C” corporation for federal tax purposes. C corporations pay income taxes directly, and any dividend distributions to shareholders are generally subject to taxes. 
  • Separate Legal Identity. A corporation conducts its business apart from its shareholders and provides limited liability protection to its shareholders, directors, employees, and officers. A corporation can own assets, borrow money, enter into contracts, sue or be sued.
  • Transfer of Ownership. Shares of stock in a corporation are generally treated as personal property under state law, which means they are easily transferable. In contrast, LLC membership units are often subject to transfer restrictions as outlined in the LLC Operating Agreement. This is a primary reason why most publicly traded companies are organized as corporations.  
  • Continuous Life. Most corporations have perpetual life, meaning they will continue to exist and operate even if the board members, officers, employees, or shareholders withdraw from the organization. 

In the United States, the State of Delaware is one of the most popular jurisdictions to form a corporation, LLC, or various other legal entities.

Business owners have many options when it comes to selecting a business entity. Some of the most popular entity types include:

Entity selection will vary greatly depending upon the desired ownership structure, type of business activities, nature and location of operations, desired tax treatment, and sources of capital.