Corporations and the Law
A corporation is an independent legal entity, separate from the people who own, control, and manage it. It is viewed by the law as a “person,” meaning that the Corporation can enter into contracts, incur debts, and pay taxes apart from its owners. Therefore, a corporation does not dissolve when its owners (shareholders) change or die, and the corporation owners benefit from limited liability.
Limited liability means that stockholders of a corporation cannot be held personally liable for business debts and claims against the Corporation. A properly formed and maintained Corporation will prevent creditors from coming after any stockholder’s personal property or possessions. Only the Corporation is liable, and the owners only stand to lose what they have invested into the Corporation.
One of the most common mistakes that owners of small business corporations make is to neglect the upkeep of corporate records. The Corporation Act requires that you prepare Minutes every year, even when action was taken without a meeting. Failing to keep corporate records and bi-laws updated could cause ‘piercing of the corporate veil, resulting in the personal liability of the shareholders.
Additionally, because a corporation is a separate business entity, corporate profits may be subject to double taxation. If you have any questions about corporations, please call our office at (312) 559-8400 or email.
Please click on these links for detailed information regarding LLCs.