USA Law and Practice Contributed by: Lisa Fontenot, Jennifer Broder, Per Chilstrom and Lothar Determann, Baker McKenzie
Baker McKenzie 452 Fifth Avenue New York New York 10018 USA Tel: +312 861 8000 Email: kristin.horn@bakermckenzie.com Web: www.bakermckenzie.com
1. Corporate Governance Requirements 1.1 Corporate Forms and Governance Requirements The principal forms of business organisations in the United States (USA or US) are corporations, partner - ships and limited liability companies (LLCs), which are all formed under state law. Corporations Corporations are separate legal entities owned by shareholders and governed by a board of directors, which oversees management and delegates day-to- day operations to officers. Shareholders generally have limited liability. Corporations are the most com - mon vehicle for public companies, and are formed by filing a certificate or articles of incorporation with the relevant state authority. For tax purposes, corporations are classified as C cor - porations or, if statutory requirements are satisfied, S corporations. C corporations are subject to entity-lev - el taxation, whereas S corporations are pass-through entities (ie, tax transparent) with significant ownership and structural restrictions. Many states also permit variations, such as public benefit corporations and statutory close corporations. A public benefit corpo - ration is organised for the purpose of a public ben - efit rather than for the primary purpose of enhancing shareholder value, while statutory close corporations have relatively fewer governance formalities.
Although corporations have more structural require - ments than other entity forms, they represent the most common form for entities that have a formal manage - ment structure and are or intend to become publicly traded, as they provide a predictable and recognised legal structure, with limited liability for shareholders and perpetual existence. Partnerships Partnerships may be formed as general partnerships or limited partnerships. In a general partnership, part - ners typically share management authority and unlim - ited liability. Limited partnerships consist of one or more general partners with management authority and unlimited liability, and limited partners whose liability is generally limited to their investment and who typi - cally do not manage the business. Partnerships are generally taxed as pass-through entities. Limited Liability Companies LLCs combine the limited liability protection of a cor - poration with flexible management and contractual freedom. They may be member-managed or manager- managed, as provided in the operating agreement, and may elect entity-level taxation or pass-through taxation. LLCs have fewer governance formalities than corporations, and fewer ownership restrictions. An LLC is formed by one or more members, by filing a certificate of formation with the secretary of state.
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