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Sole Proprietor

A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. This means that the owner has no less liability than if they were acting as an individual instead of as a business. It is a "sole" proprietorship in contrast with partnerships.
A sole proprietor may use a trade name or business name other than his or her legal name. In many jurisdictions there are rules to enable the true owner of a business name to be ascertained. In the United States there is generally a requirement to file a doing business as statement with the local authorities.<sup id="cite_ref-0" class="reference">[1]</sup> In the United Kingdom the proprietor's name must be displayed on business stationery, in business emails and at business premises, and there are other requirements.<sup id="cite_ref-1" class="reference">[2]</sup>
Advantages

chiefly they are the ability to raise capital either publicly or privately, to limit the personal liability of the officers and managers, and to limit risk to investors

Disadvantages

Raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his or her investment and the investment is more difficult to formalize;<sup id="cite_ref-2" class="reference">[3]</sup> other types of business entities have more documentation.

As a business becomes successful, the risks accompanying the business tend to grow.<sup class="Template-Fact" style="white-space: nowrap;">[citation needed]</sup> One of the main disadvantages of sole proprietors is unlimited liability where the owner's personal assets can be taken away. This is particularly true for wrongdoing or liabilities created by employees; a corporation only partially shields an owner or officer for his own actions according to the principle of piercing the corporate veil. Also, being alone in business, sole proprietors generally lack money which leads to failure<sup class="Template-Fact" style="white-space: nowrap;">[citation needed]</sup>. The small size of the business limits the breadth of management skills because there are fewer people working together. As employees generally seek stable employers, small independent businesses that have a high chance of failing have more difficulty attracting skilled people.  Lack of continuity. The enterprise may be crippled or terminated if the owner becomes ill or dies.  Relative difficulty obtaining long-term financing. Because the enterprise rests exclusively on one person, it often has difficulty raising long-term capital.

Lending

Holding everything else constant, small corporations are less creditworthy than small noncorporate firms, because the former have only the corporation’s assets to back up business debt whilst the latter have both the firm’s assets and the owner’s personal assets. Lenders also know, however, that owners of small corporations can easily shift assets between their personal accounts and their corporations’ accounts, so they may not view the corporate/noncorporate distinction as meaningful for small firms. In making loans to small corporations, lenders therefore may require that owners personally guarantee the loans. This abolishes the legal distinction between corporations and their owners for purposes of a particular loan, and puts the owner’s personal assets at risk to repay the loan.<sup id="cite_ref-3" class="reference">[4]
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Sole proprietorship's are so easy to set up and maintain that you may already own one without knowing it. For instance, if you are a freelance photographer or writer, a crafts-person who takes jobs on a contract basis, a salesperson who receives only commissions, or an independent contractor who isn't on an employer's regular payroll, you are automatically a sole proprietor.
However, even though a sole proprietorship is the simplest of business structures, you shouldn't fall asleep at the wheel. You may have to comply with local registration, business license, or permit laws to make your business legitimate. And you should look sharp when it comes to tending your business, because you are personally responsible for paying both income taxes and business debts.
Personal Liability for Business Debts

A sole proprietor can be held personally liable for any business-related obligation. This means that if your business doesn't pay a supplier, defaults on a debt, or loses a lawsuit, the creditor can legally come after your house or other possessions.
Examples

Example 1: Lester is the owner of a small manufacturing business. When business prospects look good, he orders $50,000 worth of supplies and uses them in creating merchandise. Unfortunately, there's a sudden drop in demand for his products, and Lester can't sell the items he has produced. When the company that sold Lester the supplies demands payment, he can't pay the bill. As sole proprietor, Lester is personally liable for this business obligation. This means that the creditor can sue him and go after not only Lester's business assets, but his personal property as well. This can include his house, his car, and his personal bank account.

Example 2: Shirley is the owner of a flower shop. One day Roger, one of Shirley's employees, is delivering flowers using a truck owned by the business. Roger strikes and seriously injures a pedestrian. The injured pedestrian sues Roger, claiming that he drove carelessly and caused the accident. The lawsuit names Shirley as a co-defendant. After a trial, the jury returns a large verdict against Shirley as owner of the business. Shirley is personally liable to the injured pedestrian. This means the pedestrian can go after all of Shirley's assets, business and personal.

By contrast, the law provides owners of corporations and limited liability companies (LLCs) with what's called "limited personal liability" for business obligations. This means that, unlike sole proprietors and general partners, owners of corporations and LLCs can normally keep their house, investments, and other personal property even if their business fails. If you will be engaged in a risky business, you may want to consider forming a corporation or an LLC. You can learn more about limiting your personal liability for business obligations by reading Nolo's articles on corporations and LLCs.
Paying Taxes on Business Income

In the eyes of the law, a sole proprietorship is not legally separate from the person who owns it. The fact that a sole proprietorship and its owner are one and the same means that a sole proprietor simply reports all business income or losses on his or her individual income tax return -- IRS Form 1040, with Schedule C attached.
As a sole proprietor, you'll have to take responsibility for withholding and paying all income taxes -- something an employer would normally do for you. This means you'll have to pay a "self-employment" tax, which consists of contributions to Social Security and Medicare, and pay estimated taxes throughout the year. For more information, see How Sole Proprietors Are Taxed.
Registering Your Sole Proprietorship

Unlike an LLC or a corporation, you generally don't have to file any special forms or pay any fees to start working as a sole proprietor. All you have to do is state that your business is a sole proprietorship when you complete the general registration requirements that apply to all new businesses.
Most cities and many counties do require businesses -- even tiny home-based sole proprietorships -- to register with them and pay at least a minimum tax. In return, your business will receive a business license or tax registration certificate. You may also have to obtain an employer identification number from the IRS (if you have employees), a seller's license from your state, and a zoning permit from your local planning board.
If you do business under a name different from your own (such as "Custom Coding" instead of "Jim Smith Graphics"), you usually must register that name -- known as a fictitious, or assumed, business name -- with your county. For more information on filing and publishing a fictitious business name statement, see Registering Your Business Name.
In practice, lots of businesses are small enough to get away with ignoring these requirements. But if you are caught, you may be subject to back taxes and other penalties.

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Personal Service Corporation

A corporation is a personal service corporation if it meets all of the following requirements:<sup id="cite_ref-IRS_Publication_542_02.2F2006_0-0" class="reference">[1]</sup>
1. Its principal activity during the “testing period” is performing personal services (defined later). Generally, the testing period for any tax year is the prior tax year. If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of:

a. The last day of its tax year, or
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b. The last day of the calendar year in which its tax year begins.
</pre> 2. Its employee-owners substantially perform the services in (1). This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners.
3. Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period.
Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts.<sup id="cite_ref-IRS_Publication_542_02.2F2006_0-1" class="reference">[1]</sup>
A person is an employee-owner of a personal service corporation if both of the following apply:<sup id="cite_ref-1" class="reference">[2]</sup>
1. They are an employee of the corporation or perform personal services for, or on behalf of, the corporation (even if they are an independent contractor for other purposes) on any day of the testing period
2. They own stock in the corporation at any time during the testing period

Limited Liability Company (LLC)


A limited liability company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions. LLCs do not need to be organized for profit.
Often incorrectly called a "limited liability corporation" (instead of company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation, and it is well-suited for companies with a single owner.
It is important to understand that limited liability does not imply that owners are always fully protected from personal liabilities. Courts can and sometimes will pierce the corporate veil of corporations (or LLCs) when some type of fraud or misrepresentation is involved.<sup id="cite_ref-0" class="reference">[1]</sup>
Flexibility and default rules

The phrase "unless otherwise provided for in the operating agreement" (or its equivalent) is found throughout all existing LLC statutes and is responsible for the flexibility the members of the LLC have in deciding how their LLC will be governed (provided it does not go outside legal bounds). State statutes typically provide automatic or "default" rules for how an LLC will be governed unless the operating agreement provides otherwise.
Similarly, the phrase "unless otherwise provided for in the bylaws" is also found in all corporation law statutes but often refers only to a narrower range of matters....
Income taxation

For U.S. Federal income tax purposes, LLCs are treated by default as a pass-through entity.<sup id="cite_ref-1" class="reference">[2]</sup> If there is only one member in the company, the LLC is treated as a "disregarded entity" for tax purposes, and an individual owner would report the LLC's income on his or her individual tax return. For LLCs with multiple members, the LLC is treated as a partnership and must file the IRS Form 1065. The members of the LLC would be treated as partners and each would receive a K-1 reporting the share of the LLC's income or loss to be reported on that member's tax return.
As an option, LLCs may also elect to be taxed as a corporation by filing IRS Form 8832.<sup id="cite_ref-2" class="reference">[3]</sup> They can be treated as a regular C corporation (taxation of the entity's income prior to any dividends or distributions to the members and then taxation of the dividends or distributions once received as income by the members), or an LLC can elect to be treated as an S corporation. Some commentators have recommended an LLC taxed as an S-corporation as the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation (self-employment tax savings).<sup id="cite_ref-3" class="reference">[4]</sup>
Advantages


  • Check-the-box taxation. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.
  • Limited liability, meaning that the owners of the LLC, called "members," are protected from some or all liability for acts and debts of the LLC depending on state shield laws.
  • Much less administrative paperwork and record keeping than a corporation.
  • Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.
  • Using default tax classification, profits are taxed personally at the member level, not at the LLC level.
  • LLCs in most states are treated as entities separate from their members, whereas in other jurisdictions<sup class="noprint Inline-Template" style="white-space: nowrap;">[which?]</sup> case law has developed deciding LLCs are not considered to have separate legal standing from their members (see recent D.C. decisions<sup class="noprint Inline-Template" style="white-space: nowrap;">[which?]</sup>).
  • LLCs in some states can be set up with just one natural person involved.
  • Less risky to be "stolen" by fire-sale acquisitions (More protection against "hungry" investors).
  • For Real Estate companies, each separate property can be owned by its own, individual LLC, thereby shielding not only the owners, but their other properties from cross-liability.<sup id="cite_ref-4" class="reference">[5]</sup>
Disadvantages


  • Although there is no statutory requirement for an operating agreement in most states, members of a multiple member LLC who operate without one may run into problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. Thus, in the absence of such statutory provisions, the members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.
  • It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation.
  • Many states, including Alabama, California, Kentucky, New York, Pennsylvania, Tennessee, and Texas, levy a franchise tax or capital values tax on LLCs. (Beginning in 2007, Texas has replaced its franchise tax with a "margin tax".) In essence, this franchise or business privilege tax is the "fee" the LLC pays the state for the benefit of limited liability. The franchise tax can be an amount based on revenue, an amount based on profits, or an amount based on the number of owners or the amount of capital employed in the state, or some combination of those factors, or simply a flat fee, as in Delaware. Effective in Texas for 2007 the franchise tax is replaced with the Texas Business Margin Tax. This is paid as: tax payable = revenues minus some expenses with an apportionment factor. In most states, however, the fee is nominal and only a handful charge a tax comparable to the tax imposed on corporations.
  • The District of Columbia considers LLCs to be taxable entities, thus eliminating the benefit of flow-through taxes by subjecting members to double taxation.<sup id="cite_ref-5" class="reference">[6]</sup> Typically, LLCs will choose to be taxed as a partnership to avoid double taxation, which occurs in corporations. This allows companies to distribute their income among members who then report it on their personal tax returns.
  • Renewal fees may also be higher. Maryland, for example, charges a stock or nonstock corporation $120 for the initial charter, and $100 for an LLC. The fee for filing the annual report the following year is $300 for stock corporations and LLC, and zero for non-stock corporations. In addition, certain states, such as New York, impose a publication requirement upon formation of the LLC which requires that the members of the LLC publish a notice in newspapers in the geographic region that the LLC will be located that it is being formed. For LLC's located in major metropolitan areas (e.g. New York City), the cost of publication can be significant.
  • The management structure of an LLC may be unfamiliar to many. Unlike corporations, they are not required to have a board of directors or officers. (This could also be seen as an advantage to some.)
  • Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of its treatment for US tax purposes, for example if a US LLC does business outside the US or a resident of a foreign jurisdiction is a member of a US LLC.<sup id="cite_ref-6" class="reference">[7]</sup>
  • The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC's behalf.
Variations


  • A Professional Limited Liability Company (PLLC, P.L.L.C., or P.L.) is a limited liability company organized for the purpose of providing professional services. Usually, professions where the state requires a license to provide services, such as a doctor, chiropractor, lawyer, accountant, architect, landscape architect, or engineer, require the formation of a PLLC.<sup id="cite_ref-7" class="reference">[8]</sup> However, some states, such as California, do not permit LLCs to engage in the practice of a licensed profession. Exact requirements of PLLCs vary from state to state. Typically, a PLLC's members must all be professionals practicing the same profession. In addition, the limitation of personal liability of members does not extend to professional malpractice claims.
  • A Series LLC is a special form of a Limited liability company that allows a single LLC to segregate its assets into separate series. For example, a series LLC that purchases separate pieces of real estate may put each in a separate series so if the lender forecloses on one piece of property, the others are not affected.
History by country

Companies with limited liability exist in business law worldwide. However, the limited liability company is a specific legal structure defined by the laws of U.S. states, with quite distinct characteristics. Many other countries have similar structures.



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When forming a business, the entrepreneur is typically faced with the decision of whether to incorporate. A popular method of incorporation for small businesses is to form a limited liability company. According to the Entrepreneur website, the LLC is a favored choice for businesses with one to three owners not looking to build the business into a much larger company. The LLC offers possible advantages and disadvantages.


Limited Liability

As its name implies, a limited liability company offers protection for the owner against a possible lawsuit. Unlike a sole proprietorship where the owner's personal assets may be at risk, the owner of an LLC is considered separate entity from the company. Therefore, creditors cannot seize the owner's personal assets such as a home or car to satisfy a judgment against his business.


No Double-Taxation

Owners of a typical corporation, such as a C corporation, must pay taxes on profits at the personal and corporate levels. With the LLC, any profits earned are taxable only at the corporate level. Therefore, owners of the corporation only pay taxes on profits on their personal income tax returns.


Health Insurance Premium Deduction

A problem many entrepreneurs face is finding affordable health insurance. An LLC can offer the advantages of deducting health insurance premiums on an income tax return. According to Gaebler.com, the managing member of the LLC can deduct 100 percent of her health insurance premiums, up to her pro-rata share of the corporation's net profits.


Taxable Non-Distributed Profits

A disadvantage of the LLC format is that all members of the corporation must pay taxes on corporate profits, even if they do not share in the distribution, according to the Entrepreneur website. This means that if a member decided not to pull profits out during a given year, he is still liable for taxes on the amount.


No Wages

Members of the LLC are not permitted to pay themselves a wage. Instead, any money taken out is done so in the form of profit distribution. Thus, members may be forced to take distributions if they have no other form of income. And as mentioned in the previous section, if they leave the profits in, they're still required to pay taxes.


Self-Employment Tax

Managing members of the LLC do not avoid paying the self-employment tax. Any profits earned by the LLC are considered to be earned income. As a result, the self-employment tax still applies to the bottom line.



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Corporation


A corporation is a legal entity that is created under the laws of a state designed to establish the entity as a separate legal entity having its own privileges and liabilities distinct from those of its members.<sup id="cite_ref-0" class="reference">[1]</sup> There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter (i.e. by an ad hoc act passed by a parliament or legislature). Most jurisdictions now allow the creation of new corporations through registration.
An important (but not universal) contemporary feature of a corporation is limited liability. If a corporation fails, shareholders normally only stand to lose their investment and employees will lose their jobs, but neither will be further liable for debts that remain owing to the corporation's creditors.
Despite not being natural persons, corporations are recognized by the law to have rights and responsibilities like natural persons ("people"). Corporations can exercise human rights against real individuals and the state,<sup id="cite_ref-1" class="reference">[2]</sup> and they can themselves be responsible for human rights violations.<sup id="cite_ref-2" class="reference">[3]</sup> Corporations are conceptually immortal but they can "die" when they are "dissolved" either by statutory operation, order of court, or voluntary action on the part of shareholders. Insolvency may result in a form of corporate 'death', when creditors force the liquidation and dissolution of the corporation under court order,<sup id="cite_ref-3" class="reference">[4]</sup> but it most often results in a restructuring of corporate holdings. Corporations can even be convicted of criminal offenses, such as fraud and manslaughter.<sup id="cite_ref-4" class="reference">[5]</sup>
Although corporate law varies in different jurisdictions, there are four core characteristics of the business corporation:<sup id="cite_ref-5" class="reference">[6]</sup>

Corporate law


The existence of a corporation requires a special legal framework and body of law that specifically grants the corporation legal personality, and typically views a corporation as a fictional person, a legal person, or a moral person (as opposed to a natural person). Corporate statutes typically empower corporations to own property, sign binding contracts, and pay taxes in a capacity separate from that of its shareholders (who are sometimes referred to as "members"). According to Lord Chancellor Haldane,
...a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.
—<sup id="cite_ref-21" class="reference">[22]</sup>
The legal personality has two economic implications. First it grants creditors (as opposed to shareholders or employees) priority over the corporate assets upon liquidation. Second, corporate assets cannot be withdrawn by its shareholders, nor can the assets of the firm be taken by personal creditors of its shareholders. The second feature requires special legislation and a special legal framework, as it cannot be reproduced via standard contract law.<sup id="cite_ref-22" class="reference">[23]</sup>
The regulations most favorable to incorporation include:
<table class="wikitable"> <tbody><tr> <th>Regulation</th> <th>Description</th> </tr> <tr> <td>Limited liability</td> <td>Unlike a partnership or sole proprietorship, shareholders of a modern business corporation have "limited" liability for the corporation's debts and obligations.<sup id="cite_ref-23" class="reference">[24]</sup> As a result, their losses cannot exceed the amount which they contributed to the corporation as dues or payment for shares. This enables corporations to "socialize their costs" for the primary benefit of shareholders; to socialize a cost is to spread it to society in general.<sup id="cite_ref-24" class="reference">[25]</sup> The economic rationale for this is that it allows anonymous trading in the shares of the corporation, by eliminating the corporation's creditors as a stakeholder in such a transaction. Without limited liability, a creditor would probably not allow any share to be sold to a buyer at least as creditworthy as the seller. Limited liability further allows corporations to raise large amounts of finance for their enterprises by combining funds from many owners of stock. Limited liability reduces the amount that a shareholder can lose in a company. This increases the attraction to potential shareholders, and thus increases both the number of willing shareholders and the amount they are likely to invest. However, some jurisdictions also permit another type of corporation, in which shareholders' liability is unlimited, for example the unlimited liability corporation in two provinces of Canada, and the unlimited company in the United Kingdom.</td> </tr> <tr> <td>Perpetual lifetime</td> <td>Another advantage is that the assets and structure of the corporation may continue beyond the lifetimes of its shareholders and bondholders. This allows stability and the accumulation of capital, which is thus available for investment in larger and longer-lasting projects than if the corporate assets were subject to dissolution and distribution. This was also important in medieval times, when land donated to the Church (a corporation) would not generate the feudal fees that a lord could claim upon a landholder's death. In this regard, see Statute of Mortmain. (However a corporation can be dissolved by a government authority, putting an end to its existence as a legal entity. But this usually only happens if the company breaks the law, for example, fails to meet annual filing requirements, or in certain circumstances if the company requests dissolution.)</td> </tr> </tbody></table> [edit] Ownership and control

Persons and other legal entities composed of persons (such as trusts and other corporations) can have the right to vote or receive dividends once declared by the board of directors. In the case of for-profit corporations, these voters hold shares of stock and are thus called shareholders or stockholders. When no stockholders exist, a corporation may exist as a non-stock corporation (in the United Kingdom, a "company limited by guarantee") and instead of having stockholders, the corporation has members who have the right to vote on its operations. Voting members are not the only members of a "Corporation". The members of a non-stock corporation are identified in the Articles of Incorporation (UK equivalent: Articles of Association) and the titles of the member classes may include "Trustee," "Active," "Associate," and/or "Honorary." However, each of these listed in the Articles of Incorporation are members of the Corporation. The Articles of Incorporation may define the "Corporation" by another name, such as "The ABC Club, Inc." and, in which case, the "Corporation" and "The ABC Club, Inc." or just "The Club" are considered synonymous and interchangeable as they may appear elsewhere in the Articles of Incorporation or the By-Laws. If the non-stock corporation is not operated for profit, it is called a not-for-profit corporation. In either category, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not provided to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals.
There are two broad classes of corporate governance forms in the world. In most of the world, control of the corporation is determined by a board of directors which is elected by the shareholders. In some jurisdictions, such as Germany, the control of the corporation is divided into two tiers with a supervisory board which elects a managing board. Germany is also unique in having a system known as co-determination in which half of the supervisory board consists of representatives of the employees. The CEO, president, treasurer, and other titled officers are usually chosen by the board to manage the affairs of the corporation.
In addition to the limited influence of shareholders, corporations can be controlled (in part) by creditors such as banks. In return for lending money to the corporation, creditors can demand a controlling interest analogous to that of a member, including one or more seats on the board of directors. In some jurisdictions, such as Germany and Japan, it is standard for banks to own shares in corporations whereas in other jurisdictions such as the United States, under the Glass–Steagall Act of 1933, and the United Kingdom, under the Bank of England, banks are prohibited from owning shares in external corporations. However, since 1999 in the U. S., commercial banks have been allowed to enter into investment banking through separate subsidiaries thanks to the Financial Services Modernization Act or Gramm-Leach-Bliley Act. Since 1997, banks in the U. K. are supervised by the Financial Services Authority; its rules are non-restrictive allowing both foreign and domestic capital to operate all financial institutions, including insurance, commercial and financial banking.<sup id="cite_ref-25" class="reference">[26]</sup>
Upon the Board's decision to dissolve a for-profit corporation, shareholders receive the leftovers, following creditors and others with interests in the corporation. However shareholders receive the benefit of limited liability, so they are liable only for the amount they contributed.
[edit] Formation

Historically, corporations were created by a charter granted by government. Today, corporations are usually registered with the state, province, or national government and regulated by the laws enacted by that government. Registration is the main prerequisite to the corporation's assumption of limited liability. The law sometimes requires the corporation to designate its principal address, as well as a registered agent (a person or company designated to receive legal service of process). It may also be required to designate an agent or other legal representative of the corporation.
Generally, a corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors. Once the articles are approved, the corporation's directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions.
The law of the jurisdiction in which a corporation operates will regulate most of its internal activities, as well as its finances. If a corporation operates outside its home state, it is often required to register with other governments as a foreign corporation, and is almost always subject to laws of its host state pertaining to employment, crimes, contracts, civil actions, and the like.
[edit] Naming

Corporations generally have a distinct name. Historically, some corporations were named after their membership: for instance, "The President and Fellows of Harvard College." Nowadays, corporations in most jurisdictions have a distinct name that does not need to make reference to their membership. In Canada, this possibility is taken to its logical extreme: many smaller Canadian corporations have no names at all, merely numbers based on a registration number (for example,, "12345678 Ontario Limited"), which is assigned by the provincial or territorial government where the corporation incorporates.
In most countries, corporate names include a term or an abbreviation that denotes the corporate status of the entity (for example, "Incorporated" or "Inc." in the United States) or the limited liability of its members (for example, "Limited" or "Ltd."). These terms vary by jurisdiction and language. In some jurisdictions they are mandatory, and in others they are not.<sup id="cite_ref-26" class="reference">[27]</sup> Their use puts everybody on constructive notice that they are dealing with an entity whose liability is limited, and does not reach back to the persons who own the entity: one can only collect from whatever assets the entity still controls when one obtains a judgment against it.
Some jurisdictions do not allow the use of the word "company" alone to denote corporate status, since the word "company" may refer to a partnership or some other form of collective ownership (in the United States it can be used by a sole proprietorship but this is not generally the case elsewhere).
[edit] Financial disclosure

In many jurisdictions, corporations whose shareholders benefit from limited liability are required to publish annual financial statements and other data, so that creditors who do business with the corporation are able to assess the creditworthiness of the corporation and cannot enforce claims against shareholders.<sup id="cite_ref-27" class="reference">[28]</sup> Shareholders therefore sacrifice some loss of privacy in return for limited liability. This requirement generally applies in Europe, but not in Anglo-American jurisdictions, except for publicly traded corporations, where financial disclosure is required for investor protection.
[edit] Unresolved issues

The nature of the corporation continues to evolve in response to new situations as existing corporations promote new ideas and structures, the courts respond, and governments issue new regulations. A question of long standing is that of diffused responsibility. For example, if a corporation is found liable for a death, how should culpability and punishment for it be allocated among shareholders, directors, management and staff, and the corporation itself? See corporate liability, and specifically, corporate manslaughter.
The law differs among jurisdictions, and is in a state of flux. Some argue that shareholders should be ultimately responsible in such circumstances, forcing them to consider issues other than profit when investing, but a corporation may have millions of small shareholders who know nothing about its business activities. Moreover, traders — especially hedge funds — may turn over shares in corporations many times a day.<sup id="cite_ref-28" class="reference">[29]</sup> The issue of corporate repeat offenders (see H. Glasbeek, "Wealth by Stealth: Corporate Crime, Corporate Law, and the Perversion of Democracy", ISBN 978-1896357416, Between the Lines Press: Toronto 2002) raises the question of the so-called "death penalty for corporations."<sup id="cite_ref-29" class="reference">[30]</sup>

<sup id="cite_ref-29" class="reference">http://en.wikipedia.org/wiki/Corporation#cite_note-29</sup>
<sup id="cite_ref-29" class="reference">
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