A corporation is a registered business entity that is considered a “person” under the law. The corporation is owned by shareholders who own shares of stock in the corporation. This means, that when a corporation is properly registered and operated, the shareholders are not personally liable for the debts or most acts of the corporation. Corporations have more formalities than other business entities like sole proprietorships and limited liability companies.
FORMING A CORPORATION
To form a corporation in Colorado the person creating the corporation would do so on the Colorado Secretary of State website. The formation will be a “for profit” organization, or basically filing as a C Corporation.
By-Laws for a Corporation: A Bylaw is a rule or law established by a Corporation to regulate itself. When people refer to Bylaws of a Corporation they are generally talking about a document that was created as the set of rules or regulations by which the corporation will be controlled or regulated. They determine the rights of the stockholders and provide guidance to the board in how the business will be conducted. Bylaws are extremely important and should be written in a manner, that when followed, will protect the board of directors, officers and stockholders from personal liability. Legal requirements for what the Bylaws should contain can vary by state.
A regular corporation (C Corp) is its own legal entity under the law, and therefore pays income tax based on profits of the corporation. One of the major drawbacks of operating as a corporation (C Corp) is that there is double taxation, the corporation is taxed on its profits, then the stockholders are taxed on dividends. Also, employees, which can be shareholders, are taxed on income. To avoid double taxation, one should consider if the business is eligible to make a Subchapter S election. Corporations are required to pay federal, state, and local taxes.