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Creating a Corporation

July 7, 2011

In order to understand the issues related to the regulation of business and how that affects law enforcement needs, it is helpful to understand how a business is created.
A corporation is an entity created by law, who existence is distinct from that of the individuals who created it. A corporation is 1) a legal entity; 2) it owes its existence to a State, which also regulates it; 3) it provides limited liability to its shareholders; 4) its shares of stock are freely transferable; 5) its existence may be perpetual; 6) its management is centralized; 7) for some purposes, it is considered a person. Limited liability companies were first formed in Wyoming, and may now be formed in all states. An LLC shares many of the attributes of a corporation, but also has some of the attributes of a partnership. Wyoming (along with a few other states) has recently updated its LLC laws. For those who enjoy the legalese, the Wyoming Law Review offers an excellent review of the 2010 Wyoming LLC Act (Wyo. L. R. Volume 11, Number 1, 2011, pg 49).
A corporation (or LLC) is formed by a person called an incorporator. The incorporator is not always a future owner, director or officer (or member or manager, for an LLC). Typically, the incorporator will file the articles of incorporation, which creates the company. It is then the duty of the initial board of directors to hold a first meeting, at which they adopt bylaws, appoint officers, issue ownership shares and conduct other business.
You can see from this process, that some enterprising souls will see a market for incorporating and selling corporations. Attorneys create corporations for their clients all the time. Many companies exist for the purpose of creating and selling other companies. They are almost never owners of the companies. This is a big business; many people don’t want to wade through the morass of legal requirements to properly establish their company if they can pay someone else to do it for them. Any many people are willing to pay a little extra if they don’t have to wait a few days or weeks for the company to be created. If it already exists, they can start operating almost immediately.
This is great for entrepreneurs, but it may also be abused by those looking to break the law.

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