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Corporation
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An
American corporation is a legal entity, which has power, privileges,
and responsibilities, independent of the rights and responsibilities of
the person or people who form the corporation.
An American corporation is comparable to the German GmbH.
An
advantage of a corporation is that it is easy to raise capital.
The cost to form such a company must be covered. The investment amount
varies by state, depending on which state you are in the cost varies
between 100,000 and 500,000 US Dollars.
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A Corporation has 3 membership groupings:
- Shareholders
- Directors
- Officers
A Corporation can:
- Have ownership
- Take out loans
- Create a contract that does not involve shareholders
- Can be sued and the corporation is also entitled to sue
A corporation must comply with more laws and regulations than a Sole Proprietorship or a Partnership.
For example, profits of a corporation are subject to double taxation.
This means that in the USA, a corporation is taxed twice. First, a corporation is taxed as a separate legal entity and then the profits of the shareholders are also taxed.
You should be aware of such taxes in the event that you wish to choose another type of business, such as a Limited Liability Company. A Limited Liability Company is not taxed twice, but instead the profits of the owners are taxed directly.
With regard to business law this is known in the USA as a Pass Through Organization.
Despite the tax disadvantage, an important advantage of an American corporation, as demonstrated above, is that limitation of liability of capital is not 25,000 EURO.
For you, this means that you have more liability protection in the USA, and your investments are not at risk.
In this respect, it is important to mention that under relatively strict requirements, what is known in Germany as a Durchgriffshaftung, and in the USA known as “Piercing the Corporate Veil” can be achieved.
This also must be taken into consideration, if for example, establishment requirements or formal requirements are not abided by, for example, with regard to meeting protocol (also known as Minutes), which adequately account for the yearly Shareholder meeting, the yearly Board of Director meeting, etc.
Due to this, in order to achieve 100% liability protection, we create a Corporate Book for our clients, which encompasses establishment documentation and meeting protocol (Minutes), that regulates the executive director, contracts, powers, etc. Of course we can also prepare a Corporate Book for you as well.
We assess the Corporate Book for our clients and remind them via e-mail at the beginning or end of the fiscal year, that it is time to prepare their protocol, or as the case may be to hold Board and Shareholder meetings.
It is certain that one is capable of “Piercing the Corporate Veil”.
There are of course other criteria needed in order to pierce the corporate veil, but to explain this in detail would not make sense with regard to this site.
In the event that you want to be 100% certain, you can gladly contact us, and we will assess your Corporate Book, or in the event that you have not established one, we can prepare one for you and go over other points that would help you to “Pierce the Corporate Veil”.
Corporation - Advantages & Disadvantages
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