A corporation is fairly easy to form, and results in the creation of a new entity separate from its owners. As a result, it offers the owners some personal liability protection from the corporation’s business activities. The corporate officers typically manage the day to day operations.
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Formation
A corporation is generally formed by one or more individual owners (shareholders or stockholders) filing articles of incorporation with the Florida Secretary of State. As part of the formation there are other corporate records that must be created and kept as part of the corporation’s official records (such as by-laws and corporate minutes as well as the corporate stocks). It would be a big mistake for two or more individuals to go into business together as shareholders in a corporation without a written shareholder agreement.
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Assets
Assets are typically owned by the corporation and deployed in the business venture. Problems can arise when business assets are not properly designated as being owned or not being owned by the corporation. Care needs to be given to each asset used by the business to make clear who owns the particular asset in question.
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Liabilities
Liabilities, such as for office supplies and the like, are generally the responsibility of the corporation, as opposed to the shareholders. In the event a corporation fails, the individual shareholders are typically not responsible for the unpaid debts of the business.
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Fictitious Names
Typically a corporation is operated under the legal name of the corporation. The shareholders may wish to use a business name different from the name of the corporation, and may protect the use of the business name by making a fictitious name filing with the Florida Secretary of State.
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Taxation
A new corporation can usually be created and assets transferred to it in a tax free transaction. The profits and losses from the operations of a corporation are reported on IRS Form 1120 for federal income tax purposes. The corporation pays taxes on its income, and then the shareholders report and pay taxes on any dividends they receive from the corporation. So there is two levels of taxes on the same income. Once in the hands of the corporation, and once in the hands of the shareholders. This has been the single largest draw back to using a corporation as a business vehicle until the tax laws were changed to allow certain qualified dividends to be taxed at capital gain tax rates. This law is scheduled to expire at the end of the 2010 tax year. A corporation must keep separate books and records for the corporation’s financial activities. The State of Florida imposes an income tax on the profits or losses of a corporation doing business in the State of Florida.
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