A corporation is a business recognized as a separate entity under law with rights and obligations often afforded individuals. It is a business owned by shareholders who are involved in the management of the business with rigorous rules to protect those investors and maintain the separate corporate identity.

           To create a corporation, Articles of Incorporation must be filed with the Secretary of State. The filing fee in Texas is $300. Once a corporate charter is received from the state, the shareholders must adopt by-laws as the operational guidelines for the business, as well as, elect a board of directors and officers. Thereafter, the directors must have regular meetings and shareholders must meet at least once a year to review and approve corporate activities. All meetings must be documented in the form of minutes kept by the elected Secretary. If, however, all corporate formalities are met, the shareholders, directors and officers have significant protection from personal liability.

           For federal taxation purposes, corporations are either classified as an “S Corporation” or “C Corporation.” C Corporations must file tax returns and pay income taxes on all dividends. To avoid this double taxation, S Corporations were created to permit pass-through taxation similar to a partnership. To qualify for S Corporation status, there must be a limited number of shareholders who are all individual, U.S. citizens; and the corporation must only authorize one class of stock so that all shareholders are treated equally. Both types of corporation are subject to the Texas state franchise tax.

           If things do not work out as investors hope, dissolving a corporation can be complicated and a taxable event. Therefore, you should consult with an attorney in determining whether a corporation or another available business structure will best suit your needs.