A stock corporation is a legal entity that may be formed to pursue any lawful act or activity except as may be otherwise provided by Delaware law or it Constitution. A corporation has three primary constituents â€“ stockholders, directors and officers.
A stock corporation is authorized to issue ownership interests in itself in the form of stock to its stockholders to represent the ownerâ€™s interest. A corporation may divide its shares of stock into two or more different classes, with different rights (for example, a preferred class with a priority right to dividends). In general, a stock corporation is managed by its board of directors, whose members are elected by the holders of issued shares of stock. The board of directors may appoint certain officers to exercise day-to-day control over certain aspects of the corporationâ€™s operations. The directors of a corporation owe certain fiduciary duties under Delaware law to stockholders.
A stock corporation is formed by filing a certificate of incorporation with the Secretary of State of the State of Delaware. Registered Agents Legal Services may assist you with the filing of the certificate of incorporation. Subject to applicable law, the terms under which a stock corporation may govern itself are set forth in its certificate of incorporation and bylaws. Delaware stock corporations are regulated under the Delaware General Corporation Law, 8 Del. C. §§ 101 et seq., as well as an extensive body of case law.
Stockholdersâ€™ personal assets are generally considered separate from those of the corporation whose stock they own. Except in certain rare cases in which a court â€œpierces the corporate veil,â€ or unless a stockholder is liable for a debt of the corporation by reason of his own actions, a creditor of a corporation may collect a corporate debt only from the corporation and its assets, and not from stockholdersâ€™ personal, non-corporate assets. A corporation which is operated separately and distinctively from its owners and affiliates will minimize the possibility of stockholder liability for corporate obligations.
Under normal circumstances, a stock corporation is a â€œCâ€™ corporation under the U.S. Internal Revenue Code and must pay taxes on its income. Stockholders pay separate taxes for income on their investment in the corporation.
An S corporation is a corporation that has elected to be subject to income tax rules set forth in Subchapter S of the U.S. Internal Revenue Code. An S corporation is subject to â€œpass-through taxation.â€ This means that there generally is no income tax at the corporate level. Rather, the stockholders are taxed based on their proportional equity interest in the corporation.
U.S. federal and Delaware income tax law place strict limitations on the number of permitted stockholders. S corporationâ€™s are also generally limited to one class of stock allowed. Stockholders must be U.S. citizens or permanent residents. Failure to comply with these restrictions can lead to the loss of S corporation status and other penalties.
In matters of corporate management, S corporations are generally subject to the same regulations, requirements and case law as other stock corporations.
If you wish to qualify as an S corporation, you must file elect S corporation status on a form provided by the Internal Revenue Service within 75 days after the corporation first has shareholders or assets.