For a NonProfit Corporation the Rules are much more Complex And You Must Comply so as To Continue having the Corporate Protection and the Tax exemption.
Corporation rules require that all corporations establish a board of directors, write bylaws, hold "recorded" board meetings, appoint officers, meet legal requirements for paperwork, and file Articles of Incorporation with state agencies. For profit corporation must separate directors from shareholders (directors from stock-owning shareholders), maintaining a stock ledger, and holding an annual shareholder meeting.
Creation - Create by filing articles of incorporation with the Secretary of State.
Maintenance of corporate status -- Must comply with statutory formalities.
Ownership -- Shareholders own the corporation and elect the Board of Directors
Government - The Board of Directors governs the corporation elect the officers
Management - The officers manage its day to day activities. Shareholders manage the corporation in some case of extraordinary circumstances.
Corporate structure: Corporations in California may have only one shareholder who can be the sole director, and have three capacities as an officer. He or she can be all three: the president, the treasurer (chief financial officer) and the secretary officer of the corporation. Of course, as the sole shareholder, he elects himself to be the sole director, and subsequently, as a director, he elects himself to be all three officers: president, treasurer, and secretary.
If a corporation has a total of two shareholders, the law requires two corporate directors, and if a corporation has a total of three or more shareholders, there must be at least three directors. This helps in creating a balance in the corporation. For example, if there are three shareholders, and one has the majority of the shares, he can still be outvoted from the other two directors -- since all three directors are required when there are three shareholders. This helps shareholders with smaller # of shares to make important decisions such as the sale of stock and / or the election of officers.
Tax considerations: The current maximum federal corporate tax rate is 35%. The California corporate tax rate is 9.3%.
Tax savings: If the business fails, individual shareholders may offset up to $50,000 ($100,000 on a joint return) from their ordinary income.
Limitation of Liability: To limit their liability to the initial investment capital, the shareholders must follow statutory formalities, such as meetings of the shareholders and directors, etc. If they fail to follow these formalities, the shareholders may be personally liable for the debts or other claims against the corporation. The liability of the directors to shareholders may be limited by a certain procedure included in the bylaws and/or other legal documents.
Additional investment: To attract more investors, the corporation may sell or issue additional shares of stock to new investors or to a venture capitalist ( preferred stock).