June 8, 2008 by admin

825. What is a corporation?

825.1 How does an association classify as a corporation?

The term "corporation" applies to associations of several people in a joint business effort. In this context, corporations do not necessarily require a corporate charter. Corporations have each of the following characteristics that make them different from other organizations:

1. Management is centralized. A certain number of associates, acting as a board of directors, controls the association regarding how business is conducted;

2. The organization continues uninterrupted upon the death of an owner or a change in share ownership;

3. The organization's members have the absolute right to dispose of their interests in the organization;

4. The organization intends to continue growing as a business; and

5. No associate is personally liable for debts incurred that exceed the organizations assets.

If an association meets these conditions, it is classifiable as a corporation. Therefore, members who perform duties similar to those of officers of a corporation are considered employees.

825.2 Are partners considered employees of the partnership?

Partners are generally not employees of either the partnership or any of the partners of the business. However, a partnership can be classified as a corporation if it meets conditions (A) - (E) above. If a partnership can be classified as a corporation, partners who perform duties similar to those of officers of a corporation are considered employees.

825.3 Are officers and employee-shareholders of S Corporations considered employees?

Yes. Officers and employee-shareholders of S Corporations are employees of the corporation. Compensation for their services is wages paid by the corporation.

Last Revised: March, 2001