What is a corporation and how does it work?

A corporation is a business entity which can have perpetual duration – that is, it is a legal person that can live forever. It consists of three basic parts: The shareholders, who own the corporation and are entitled to its profits, the directors, who make the larger plan for the business of the corporation and literally direct its operations and who are appointed by the shareholders at an annual meeting, and last, the officers, who run the business on a day-to-day basis and are hired by the board of directors. The only officers required by Texas law are a president and a secretary, although there can be vice-presidents, a treasurer, assistant secretary, etc.

Why would a business want to incorporate?

There can be many reasons for a business to be incorporated, but usually the most attractive reason is the limitation on liability which incorporation affords the principals in a business enterprise. With a sole proprietorship or a general partnership, there is personal liability for the owners with regard to all aspects of the conduct of the business. With a corporation, the personal assets of the people involved as shareholders, directors and officers are generally not available to creditors of the business.

Can one person form a corporation in Texas?

Yes, in Texas, one person can form a corporation and be the sole shareholder, sole director and also serve as the president/secretary. Many corporations consist of a husband and wife team, and are often referred to as “mom and pop” businesses.

Can one person form a non-profit corporation in Texas?

No, a not-for-profit corporation has different laws which govern its formation and operation in the state of Texas, and at least three people have to serve on the Board of Directors.

What is a limited liability company?

An LLC, as it is commonly called, is a newer kind of business entity which can be treated as a partnership for tax purposes, but which offers the same kind of protection from liability as a corporation. Instead of shareholders, it has members, who can manage the business directly or hire managers to run the day-to-day operations.