One of the ideas floating in diplomatic circles and in Congress is the concept of minimum corporate income taxes.  To understand what is being discussed, it is important to understand some basics of corporate law and income tax law as it applies to businesses.

Corporations come in all shapes and sizes.  They range from small charities to your local independent grocery store to big multi-nationals.  What they all share in common derives from the basic concept of the corporate structure — that the corporation is an independent legal person.  This basic concept allows people to become “owners” of the corporation — either shareholders who make money from the profits in a for-profit organization or as members who merely support and have a vote in electing the governing body in not-for-profit organizations.  The key thing for both is that, unless you participate in the management and do something that makes you personally liable, a person suing the corporation for corporate acts can only recover from the assets of the corporation and may not collect any judgment from the owners of the corporation.  This differs from a partnership (an unincorporated business with multiple owners) in which a claimant can go after the personal property of all of the partners or a sole proprietorship (an unincorporated business with only one owner) in which a claimant can go after the personal property of the sole owner.

One key thing about corporations is that they can have a single owner or multiple owners.   Thus, it is possible to have a parent company which is the sole owner of separate “subsidiaries.”  Putting it in a little more benign situation, think of a regional grocery company.   The regional company is the parent company.  But each of the grocery stores is its own corporation wholly owned by the regional company.  That way, if problems occur at one store, it does not bring down the entire chain of stores. Continue Reading...