Often referred to as a “C” Corporation, it is the most common corporate structure. A General Stock Corporation is a legal business entity, which acts under the law as a separate entity, distinct from the shareholders who own it with the right to issue stock, have an unlimited number of shareholders, and exist indefinitely. This is generally the entity of choice where the owners plan a private offering of stock to raise capital, transact business globally, expand by acquiring other businesses, or eventually become a publicly traded corporation.
Being a separate legal entity, the corporation is responsible for the activities of the business. By following proper corporate formalities which include holding regularly scheduled meetings, documenting decisions through corporate minutes, conducting banking through a separate corporate bank account, filing corporate tax returns, and staying in compliance with state statutory requirements, the shareholders are protected. The owners‘ liability is limited to the amount of investment in the corporation, not their personal assets. Failure to follow the formalities of corporate compliance will allow the courts, creditors, and the IRS to pierce the corporate veil and hold the officers, directors, and shareholders personally liable.
For some, the disadvantage of utilizing a general corporation (or C corporation) to do business is that its earnings may be taxed twice. If a corporation earns a profit it pays taxes on that profit. Then if the Directors decide to pay a dividend from after tax profits to its shareholders, the shareholders must pay tax on that money as income. However, the corporate tax code is vast and complex; double-taxation can be minimized through proper planning.
What Groups are a Part of a General Stock Corporation?
A general stock corporation is divided into three groups: the Shareholders, the Directors, and the Officers. Each group has different rights and responsibilities within the corporate structure.
Shareholders or Stakeholders
The shareholders, or sometimes known as stakeholders, are actually the owners of the company; however, they do not manage the day-to-day operations of the company. Shareholders elect the Board of Directors and vote on matters of major significance to the company. Shareholders have the exclusive right to:
- Elect and remove directors
- Amend the articles of incorporation and bylaws
- Approve the sale of all or substantially all of the corporate assets
- Approve mergers and reorganizations
- Dissolve the corporation
Any shareholder who holds a majority of shares from issued stock can actually control the company. This is often referred to as a majority shareholder. Majority shareholders take on an elevated responsibility to minority shareholders who generally have no responsibility to the company, have the option to sell their stock whenever they want, and they can assign their votes to anyone they choose.
Shareholders reap rewards in two ways: dividends paid on their stock (when and if the Board of Directors declares a dividend), and the increase in the value of their stock when the company grows and prospers.
Board of Directors
Directors generally set policy for the corporation, are responsible for the overall management, and make major financial decisions such as:
- Authorize the issuance of stock
- Decide if, when, and the amount of dividends to be issued to shareholders
- Establish corporate policies
- Elect the corporate officers and hire key management
- Set officer and key employee salary amounts and compensation packages
- Decide whether to mortgage, sell, or lease real estate, and
- Approve loans to or from the corporation
Directors also have certain fiduciary responsibilities to their company. This means they must be loyal to the company; they must make informed, independent decisions as board members; they must not act in bad-faith, such as self-dealing or fraudulent dealings; and they must act in the best interests of the company and its shareholders.
Directors have the option of making decisions and taking actions using two methods: in pre-announced board meetings with a quorum present; or without a meeting by unanimous written consent of all directors. Also, Directors cannot offer or sell their votes to another Director or vote by proxy.
Directors may be removed and replaced, with or without cause, by a majority vote of the shareholders. This is one reason why a majority shareholder can control the company.
Corporate Officers are elected by the Directors and handle the day-to-day operations of the corporation. Officers are generally the President, Vice President, Secretary, and Treasurer. However, Directors may appoint other officers as needed, such as a Chief Financial Officer, a Chief Counsel, Marketing Manager, Operations Manager, or any other designated title. In addition to a salary, Officers may be compensated with stock, or be granted the right to purchase stock in the company.
Features of a General Stock Corporation
- Three tiers of power: Shareholders, Directors, and Officers with a clear separation of rights and responsibilities
- No limit to the number of shareholders
- Shareholders own the company
- Owners (or shareholders) have limited liability for debts and obligations
- Directors are elected by the shareholders
- Directors run the company
- Minority shareholders are not responsible for the company
- Can be Subchapter S if all qualifications are met
Benefits of Incorporating in Delaware
- Business owners of an international company can for their business in Delaware while not having to operate in the state.
- The State of Delaware maintains a separate court system for business – the Court of Chancery. It is the oldest business court in the nation and uses a panel of Judges instead of a jury.
- A single person can hold all corporate offices in a Delaware corporation.
- Delaware corporations are not required to have a corporate office in the state because state law requires a corporation to maintain a Delaware Registered Agent.
If you would like to learn more about how to form a business, please contact us for more information. We are happy to answer any questions and guide you through the formation process.