What are the characteristics of a Corporation?

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Our International Business Planning Lawyers Can Help You Create a Corporation for Your Business Ventures in the United States

A corporation is a legal entity that is separate and distinct from its owners. It is formed by filing articles of incorporation with the secretary of state in accordance with the laws of the state or jurisdiction where you want to incorporate.

Once incorporated, the corporation has all the rights and responsibilities of an individual in terms of entering into contracts, owning assets, being taxed, and being sued. However, its key difference from other business structures like sole proprietorships and partnerships is that it provides limited liability protection to its owners, known as shareholders.

At MEG International Counsel, our international business planning lawyers can help you determine if a corporation is the best way to structure your business in the United States. 

Characteristics of a Corporation

Forming a corporation requires filing documents with the Secretary of State to be authorized. This requires at least one owner, who is called a stockholder. A stockholder has limited liability and is only liable up to the amount of their contribution. The stockholders may have agreements between them about how to vote in the annual meetings and special meetings that are called.

The corporation is managed by a Board of Directors and company officers (President, Secretary, Treasurer, etc.).

Profits and losses are first taxed at the corporate level at the rate, then later at the dividend level when distributions are made to the stockholders. If the corporation elects tax treatment under Sub-Chapter S of the Tax Code, then the stockholders' income will flow through directly to the stockholders and avoid having to be taxed twice on the same income. However, this election is not available if the corporation has foreign resident stockholders.

Benefits of Forming a Corporation 

Some of the advantages of choosing a corporation as the format for your business include: 

  • Limited liability for shareholders. One of the most significant advantages of a corporation is the limited liability it offers its shareholders. This means that the shareholders' personal assets are shielded from the corporation's debts and liabilities beyond their capital contribution.
  • Perpetual existence. Unlike sole proprietorships and partnerships, which are dissolved upon the death, bankruptcy, or withdrawal of owners, corporations have perpetual existence. The corporation continues to exist regardless of changes in its ownership or management structure.   
  • Transferable ownership. Shares in a corporation are easily transferable, which allows shareholders to buy, sell, or transfer their ownership interests with relative ease. 
  • Centralized management. Corporations have a hierarchical management structure, with shareholders electing a board of directors to oversee the company's operations and strategic direction. The board, in turn, appoints officers such as the president, chief executive officer (CEO), and chief financial officer (CFO) to manage the day-to-day operations. This centralized management structure allows for the separation of ownership (shareholders) and control (management).

Disadvantages of Forming Your Business as a Corporation 

Potential drawbacks to consider as you’re determining the best way to structure your business include: 

  • Taxation. Corporations are subject to double taxation, meaning that the corporation's profits are taxed at the corporate level, and any dividends distributed to shareholders are taxed again at the individual level as personal income.
  • Difficulty in raising capital. While corporations have various options for raising capital, such as issuing stock or taking on debt, attracting investors or securing loans can be challenging, particularly for new or unproven businesses. 
  • Increased regulation. Corporations are subject to extensive regulation and compliance requirements at both the federal and state levels. These regulations cover areas such as corporate governance, financial reporting, securities laws, environmental protection, and labor practices. 

How MEG International Can Help Form Your U.S. Business

As a wealthy investor from Mexico or Latin America, working with an attorney who lacks expertise in international business planning and cross-border transactions can leave you vulnerable to costly missteps and oversights. Instead, turn to MEG International Counsel for tailored legal solutions that empower foreign entrepreneurs to successfully venture into the U.S. market. Whether you're establishing a new venture or expanding an existing business into the U.S. market, Antonio Gastélum and María Elia Gastélum will ensure a seamless translation of your vision into a legally sound and compliant business structure.