How Corporations Work

Corporations and Limited Liability Companies are created, not born, with the legal status of a person. They are, in effect, created of legal age, in any state that the owners choose, have the ability to contract, make loans, make sales, pay expenses, etc. Although they obtain their own social security number (known as an electronic identification number (EIN)), they have no social security taxes to pay for themselves because they are not physical persons needing retirement or medical benefits. They do have the need to file tax returns, open checking accounts, have a headquarters, and the list goes on and on. The common difference between people and companies (meaning, corporations and limited liability companies) is that corporations and limited liability companies have only one function, namely, to turn a profit for the stockholders or members. They are created by operation of law by their state of incorporation or organization.

The process goes like this. One or more person(s) become(s) the incorporator(s) or organizer(s). The incorporator’s or organizer's job is to get the necessary paperwork to the state to startup a company. When the state accepts the paperwork, the state files it and usually returns stamped copies of the paperwork, along with some type of Certificate of Incorporation or Organization back to the Incorporator(s) or Organizer(s). The Incorporator(s) or Organizer(s) then appoint temporary director(s) or managing member(s), usually one or more stockholders or voting members or managing members to be managing directors or managing member(s) until the first meeting of stockholders or members. Then the Incorporator(s) or Organizer(s) resign(s).

The appointed managing director(s) or member(s) then hold an initial stockholder(s) or voting member(s) meeting, and then the initial managing director(s) or managing member(s) resign.