Definition: What is a corporation?
A corporation exists independently of its shareholders. It is a “legal person” whose rights and obligations are exercised by its legal representatives. These legal representatives of the corporation do not necessarily have to be the shareholders; outside managing directors or board members can also be appointed for this purpose.
Forms of corporations
There are two dominant forms of the corporation:
- the limited liability company
- uand the Public limited company.
Advantages and disadvantages of a corporation
According to the GmbH and Aktiengesetz, the shareholders of a corporation must make and prove a capital contribution to the corporate account. A notarised partnership agreement regulating the legal relationship between the company and its shareholders is required for formation. Entry in the competent commercial register is also required.
The shareholders of a corporation are liable for the obligations of their corporation only to the extent of their capital contribution. However, in order to protect the capital of corporations, the law provides that shareholders of corporations can only make limited distributions.
If you run a corporation, you must strictly separate the private sphere from the corporate sphere for accounting and tax purposes. The company assets are separate from the private assets of the shareholders.
Corporations are subject to the obligation to register a trade, with the consequence of paying trade tax to the municipal administration.
The corporation pays all taxes due for the company.