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To avoid a problem with a permissible corporate name, your attorney
should check with the Corporation Bureau prior to filing the
Articles to see whether the desired corporate name is
permissible
under the law or is available (i.e., not taken by another corporation).
A Docketing Statement must be prepared and filed with the Commonwealth
along with Articles of Incorporation. The Docketing Statement
sets forth further information about the corporation such as
the names of the officers and their addresses. Furthermore, the
Docketing Statement is used by the Commonwealth to advise other
Commonwealth departments that a new corporation exists. Thus,
the Docketing Statement gives such offices as the Department
of Revenue and the Department of Labor, the corporation's address
so that appropriate forms can be sent from the Department to
the Corporation. Once the Articles of Incorporation and Docketing
Statement are filed, the existence of the corporation begins.
Upon filing Articles of Incorporation with the Commonwealth,
legal advertisements must be made in a local newspaper and the
legal journal. The legal advertisement simply notifies the public
that a new corporation exists.
Incorporation is a preferred vehicle for many businesses because
of the limited liability generally afforded the corporation shareholders.
The formal requirements of a corporation must be met to preserve
its separate existence and its unique characteristic of limited
liability. Limited liability in general means that the shareholders,
or corporate owners, will not be personally liable for its debts.
With some exceptions, only the corporation itself as a separate
entity will be liable. Thus, a corporation limits the potential
losses of the shareholders to the money which they put into the
corporation. Failure to adhere to the formalities of a corporation
exposes the individual shareholders of the corporation to a claim
that the corporation does not properly exist and that the limited
liability of the owners of the corporation should be disregarded.
Also, it should be understood that creditors of a corporation
may require the individual owners of the corporation to be
personally responsible for the financial obligation of the
corporation. In such a case the individual would become personally
liable only for what he or she guaranteed and not for other
corporation obligations. Typically the corporation's bank will
require shareholders of such companies to guarantee loans.
Another major factor of a corporation is the fact that it is
a separate legal entity for income tax purposes. Thus, the corporation
must file a separate tax return. The Internal Revenue Code allows
the corporation either to pay its own taxes or in certain instances
for the shareholders to elect to have the corporation treated
as if it is not a separate legal entity for tax purposes and
thus have the taxable income and expenses of the corporation
flow through to the individual shareholder. This election is
known as "S" election. A similar election is available
for Pennsylvania Corporate Income Tax purposes.
There are many other factors which surround the topic of corporations.
For example, if there is more than one owner or shareholder of
the corporation, the shareholders may want an agreement between
them regarding how their stock will be held, (e.g., to determine
what happens if a shareholder dies, etc.). These agreements are
often referred to as shareholder agreements. Also, corporations
commonly have by-laws that outline generally how the corporation
will operate. Furthermore, corporations must hold periodic meetings
of shareholders and directors. Minutes of these meetings must
be taken and recorded to further demonstrate that the entity
is not only a corporation but acting like a corporation. Again,
careful attention must be paid to the details of forming and
maintaining a corporation.
Corporations are the poplar choice of business entity in contrast
to partnerships or proprietorships. The limited liability of
shareholders from creditors and lawsuits is perhaps the major
reason for this. Other reasons include the businesslike structure
of corporations with officers and directors, the ease of transferring
an interest in a corporation simply through stock certificates,
and the flexibility in how corporations are taxed. However, these
advantages to corporations are jeopardized or non-existent unless
proper corporate procedures are carefully followed with your
corporate attorney when forming and operating a corporation.
If you need an attorney and don't have one, the Lawyer Referral and Information Service can help.
Call Us Monday - Friday from 8:30 AM - Noon and 1:15 PM - 3:00 PM
at (814) 459-4411. |
