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:
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Management is centralized. A certain number of associates, acting as a board of directors, controls the association regarding how business is conducted;
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The organization continues uninterrupted upon the death of an owner or a change in share ownership;
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The organization's members have the absolute right to dispose of their interests in the organization;
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The organization intends to continue growing as a business; and
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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