Corporate Structure
A corporation has a universal consistent structure. Each corporation in Virginia has shareholders, directors, officers and employees.
Shareholders elect directors, and receive distributions. They do not become involved in the day to day management of the company. They are required to approve major actions such as the sale of the all or substantially all of company's assets and will make all major policy decision of the corporation. They also approve all major decisions of the corporation.
Officers have the responsibility for all the day to day operations of the company as authorized by the board of directors. The same person can hold all three offices.
Corporate meetings. Virginia law requires the shareholders to meet once a year to elect the directors. The directors should meet as necessary for the guidance of the corporation. Meetings can be conducted in person or by conference call, or a combination of both.
Corporate formalities. Each year, each corporation has to file an annual report with the State Corporation Commission. It also has to pay an annual fee to the State Corporation Commission. The amount of the fee depends upon the number of authorized shares of the corporation.
Compensation. A corporation must pay a reasonable salary to the officers. A corporation should make an annual distribution of profit. The balance between the amount of salary and the amount of distributions is difficult to reach, and you should consult with your accountant to comply with the IRS regulations.
Tax status. A corporation can elect to be taxed as a C corporation or an S corporation. Profits of a C corporation are first taxed within the corporation, and then the distributions are taxed at the shareholder's level (i.e., double taxation). An S corporation is a "pass through" entity, which means that the profit of the corporation passes through the corporation (and is not taxed within the corporation). Rather, the profit is taxed at the shareholder level. Generally, small businesses will elect to be an S corporation to avoid double taxation issues. The decision as to which type of corporation is right for you should be reached with your accountant. Legally, there is no difference between an S corporation and a C corporation.
