Forming an Oregon Corporation

A corporation is a type of business structure that is legally separate from its owners or shareholders, meaning the business itself, not the shareholders, is held legally liable for the corporation's actions and debts. This characteristic is referred to as limited liability.

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Key elements of a corporation include:

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Independent Legal Entity:

A corporation is considered an independent legal entity separate from its owners. It can sue, be sued, own assets, and incur liabilities.

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Limited Liability:

Shareholders' personal assets are protected. If a corporation fails, shareholders will not be personally liable beyond their investment in the corporation.

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Shareholders:

Ownership of a corporation is determined by shares of stock. Shareholders may receive dividends, a portion of the profits of the corporation, depending on the number and type of shares they own.

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Board of Directors:

A corporation is overseen by a board of directors elected by the shareholders. The board makes major decisions and sets high-level policies for the corporation.

Officers: A corporation's daily operations are handled by officers (such as a CEO, CFO, etc.) who are appointed by the board of directors.

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Perpetual Existence:

Corporations can exist perpetually, meaning they continue to exist even if the owners or officers change or if a shareholder dies.

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Taxes:

Corporations are subject to corporate tax rates, and profits distributed to shareholders in the form of dividends are taxed again on the shareholder's personal income tax return. This is often referred to as double taxation.

While Limited Liability Companies (LLCs) and partnerships have their advantages, there are several notable reasons why someone might choose to form a corporation:

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Raising Capital:

It's often easier for corporations to raise capital through the sale of stock, which may be particularly attractive to investors. This can be crucial for businesses anticipating a significant need for capital or hoping to go public in the future.

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Limited Liability:

Shareholders' financial liability is limited to their investment in the corporation. They are typically not personally liable for the corporation's debts and obligations.

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Perpetual Existence:

A corporation is an entity that exists independently of its owners. This means it can continue indefinitely, regardless of what happens to its owners or management.

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Transferability of Ownership:

Ownership in a corporation is typically more easily transferable than in an LLC or a partnership. Shares of stock can be sold or transferred without disrupting operations.

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Established Legal Structure:

The corporate structure is traditional and widely understood, with established legal precedents. Some business owners may prefer to rely on this well-established legal framework.

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Potential Tax Benefits:

Depending on the situation and tax status of the corporation (there are C-Corps and S-Corps, each with unique tax implications), a corporation may result in tax benefits.

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Attracting Employees:

Corporations also have a variety of options for creating compensation packages, such as stock options, which may be more attractive to potential employees.

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Each business structure has its own potential benefits and drawbacks, and the best choice depends on the individual circumstances, including business type, liability issues, tax implications, and future plans for growth. It's advisable to consult with legal and tax advisors when choosing any type of business structure.

While there may be costs associated with hiring an attorney, the benefits you receive in terms of avoiding future legal issues, ensuring compliance with laws, and receiving personalized advice often outweigh the initial expense. Corporations are more complex to set up and manage. They are also subject to greater regulation.

 

Enlisting the services of an attorney in the formation of a corporation brings multiple benefits:

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Structuring the Corporation:

An attorney can advise on the type of corporate structure that's most advantageous for your specific circumstances—whether a C corporation, an S corporation, or another type of entity might best fulfill your business goals.

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Navigating Legal Requirements:

Forming a corporation involves complying with numerous legal requirements such as filing the correct documents (like Articles of Incorporation) in a timely manner, setting up bylaws, and more. An attorney can help ensure all these requirements are met.

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Drafting Corporate Bylaws and Agreements:

Key to forming a corporation is drafting the corporate bylaws and any shareholder agreements. An attorney can help craft these documents to serve the best interests of the company and its owners.

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Protecting Personal Liability:

One of the main benefits of a corporation is the protection it offers against personal liability. An attorney can make sure that the corporation is properly formed and operated to preserve that protection.

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Guidance on Regulatory Compliance:

Corporations are subject to numerous local, state, and federal laws and regulations. An attorney can provide guidance on relevant legislation and how to remain compliant.

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Tax Considerations:

While an attorney may not provide specific tax advice, they can advise on the various potential tax implications of forming a corporation and can refer you to a tax professional if necessary.

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Future Problem Prevention:

An experienced attorney can help foresee potential future issues and ensure that the necessary provisions are in place in the corporate documents to handle such scenarios.

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While there may be upfront costs associated with hiring an attorney to form a corporation, the long-term benefits—including avoiding legal complications, ensuring compliance, protecting personal assets, and setting up effective governing structures—can provide significant value. It makes good business sense to hire an attorney to set up your corporation.