A corporation is a legal entity which is separate from the people who own it - the shareholders. The government, sometimes the federal, but usually the state, creates, regulates, taxes and dissolves corporations. For example, a Tennessee Corporation is formed by filing articles of incorporation with the Tennessee Secretary of State. Shares of stock, which represent the shareholder's financial interest in the corporation, may be issued. The life of a corporation is perpetual, unless otherwise provided by law or in the articles of incorporation.
Bylaws are the specific rules adopted by a corporation and are normally prepared by an attorney.
They contain such information as the nature and timing of director and shareholder meetings as well as the election of corporate officers. Unlike the other business enterprises which we have mentioned, a corporation is managed by a board of directors which is elected by the shareholders at an annual meeting. The prime advantages of a corporation are its long life, greater access of capital, limited liability of shareholders and easy transfer of ownership. On the other hand, corporations are more expensive to establish and operate, shareholders do not participate in the management of their property and there are more government regulations. Corporations are required to pay state franchise taxes and excise taxes, as well as U.S. Income Taxes, and shareholders may also pay taxes on their dividends and capital gains.