Corporations

A corporation is a separate legal entity formed by filing articles of incorporation with the Pennsylvania Department of State. The ownership of the corporation is evidenced by stock certificates are held by shareholders (who may be individuals, partnership, other corporations, or other forms of legal entities).

Management: The management of the corporation is overseen by the board of directors, who must all be individuals and who are elected by the shareholders; and the day-to-day management of the business is the responsibility of the officers of the corporation, who must be individuals and who are elected by the board of directors.

Liability: If the corporation is properly organized and operated, in most cases the shareholders of the corporation have no liability for the debts and obligations of the corporation.

Taxation: A corporation may be designated as a "C corporation" or a "S corporation" under the Internal Revenue Code and Pennsylvania state tax law. C corporations are taxed as separate entities: the corporation pays income tax on its income, and the shareholders pay income tax on dividends they receive. S corporations, which are used for many small and medium-sized businesses, are treated like partnerships for tax purposes: the corporation itself pays no income tax, but income and losses are passed through the corporation to the shareholders. Corporations which do not quality as Pennsylvania S Corporations are taxed at a flat rate of 12.25 percent compared to the 2.8 percent flat rate applicable to individuals. The corporation's tax status does not affect its legal status as a corporation under state law.

Continuity: Corporations can have perpetual existence. Their legal life is independent of the lives of its shareholders.

Transferability: Shares of stock may generally be freely sold, assigned or otherwise disposed of by the owner. In small, closely-held corporations, the shareholders may agree among themselves on restrictions on the transfer of shares. In some instances, Pennsylvania and Federal securities acts may restrict how and when shares may be transferred, although this is usually not an issue for small closely-held corporations.