A corporation is a business that is legally separate and distinct from its owners.
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Definition of CorporationA corporation is a legal entity that is separate and distinct from its owners or stockholders. It is an artificial being, created operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence. Common Features of a Corporation
Advantages of a Corporation
Types of CorporationsDifferent types of corporations are as follows: Publicly Held CorporationA publicly held corporation is a corporation whose stock is sold to and owned by the public instead of private investors. The shares of such corporations are traded on a public stock exchange (e.g., the New York Stock Exchange or NASDAQ in the United States). Closely Held CorporationA closely held corporation is a corporation whose shares of common stock are owned by relatively few individuals and are generally unavailable to outsiders. Limited Liability Company (LLC)A form of business organization with the liability-shield advantages of a corporation and the flexibility and tax pass-through advantages of a partnership. C CorporationA C Corporation (also known as “C Corp”) is a legal entity that protects the owners’ personal assets from creditors. It can have an unlimited number of owners and multiple classes of stock. These characteristics and other advantages make it a good vehicle for attracting venture capital and other types of equity financing. S CorporationAn S corporation is a special structure of business ownership by which the business can avoid double taxation because it is not required to pay corporate income tax on the profits of the company. All profits/losses are passed on directly to the shareholders of the company. Unlike a C Corporation, an S Corporation must not have more than 100 shareholders and must have only one class of stock. Professional CorporationA professional corporation is a corporation consisting of professionals who are licensed to practice a particular profession such as accountants, lawyers and doctors. These professionals can form a corporation and take advantage of the various benefits of the corporate structure such as limited liability of shareholders, continuity of life and centralized management. However, shares in a professional corporation can only be transferred to other individuals licensed to practice in the same profession. Nonprofit CorporationA nonprofit corporation is an organization formed for serving a purpose of the public other than for the accumulation of profits. These corporations enjoy tax-exempt status; however, specific requirements and limitations are imposed on their activities. Nonprofit corporations are generally those that serve a scientific, literary, education, artistic or charitable purpose that benefits the public. The Making of a CorporationA corporation is created when it is incorporated by a group of shareholders who have ownership of the corporation, represented by their holding of common stock, to pursue a common goal. Incorporation is the legal process used to form a corporate entity or company. Incorporation has many advantages for a business and its owners, including:
Incorporation involves drafting “articles of incorporation” which lists the primary purpose of the business and its location, along with the number of shares and class of stock being issued if any. As a rule, the shareholders are only responsible for the payment of their own shares. As owners, the shareholders are entitled to receive the profits of the company, usually in the form of dividends. The shareholders also elect the directors of the company. The directors of the company are responsible for day-to-day activities. They owe a duty of care to the company and must act in its best interest. They are usually elected annually. Smaller companies can have a single director, while larger ones often have a board comprised of a dozen or more directors. Except in cases of fraud or specific tax statutes, the directors do not have personal liability for the company’s debts. The process for forming a corporation varies according to the state you do business in and the state you live in. For the most part, you’ll need to file articles of incorporation with the state and then issue stock to the company’s shareholders. The shareholders will elect the board of directors in an annual meeting. Requirements for Articles of IncorporationThe articles in the document vary by state, but the following “articles” are typically included:
Most states also require the articles to state the firm’s purpose, though the corporation may define its purpose very broadly to maintain flexibility in its operations. Amazon’s certificate of incorporation, for example, states that the corporation’s purpose is “to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.” Other provisions outlined in a company’s articles of incorporation may include the limitation of the directors’ liability, actions by stockholders without a meeting, and the authority to call special meetings of stockholders. Each state has certain mandatory provisions that must be contained in the articles of incorporation and other optional provisions that the company can decide whether to include. Many states charge filing fees for a business that incorporates in the state, whether the business operates there or not. A business that is incorporated in one state and is physically located or doing business in another state must register in the other state as well, which involves paying that state’s filing fees and taxes. Another key corporate document is the bylaws, which outlines how the organization is to be run. Bylaws work in conjunction with the articles of incorporation to form the legal backbone of the business. Rights of a ShareholderThe following are some of the rights of a shareholder:
Components of a Corporation
Classes of Shares in General
Corporate LiquidationWhen the corporation has reached its objectives, its legal life can be terminated using a process called liquidation or winding up. Essentially, a company appoints a liquidator who sells the corporation’s assets, then the company pays any creditors and gives any remaining assets to the shareholders. The liquidation process can be voluntary or involuntary. If it is involuntary, the creditors of an insolvent corporation usually trigger it, and this may lead to the corporation’s bankruptcy. FAQs1. What is a corporation?A corporation is a legal entity created under the laws of a particular jurisdiction, usually by filing certain documents with the appropriate government agency. A corporation has certain rights and liabilities that are separate and distinct from those of its shareholders, who are the owners of the corporation. 2. How is a corporation formed?A corporation is typically formed by filing certain documents with the appropriate government agency, including the Articles of Incorporation and the Bylaws. The incorporators are the persons who create the corporation, and they must subscribe to at least one share of stock. The promoters are persons who bring about or cause to bring about the formation and organization of a corporation, and they may receive shares of stock in return. 3. What is the difference between a corporation and a limited liability company?The main difference between an LLC and a corporation is that an LLC is owned by its members, while a corporation is owned by its shareholders. In addition, a corporation has limited liability for the debts and obligations of the corporation, while an LLC does not. 4. What are the pros and cons of forming a corporation?The pros of forming a corporation are that it offers limited liability for the shareholders, it is a separate legal entity, and it has perpetual existence. The cons are that it is more expensive to form and operate than an LLC, and it is subject to heavier government regulation. 5. What are the types of corporations?The types of corporations are C-corporations, S-corporations, Publicly Held Corporation, Closely Held Corporation, Professional Corporation, Nonprofit Corporation, and limited liability companies. Is a corporation a business that is legally separate and distinct from its owners?A corporation, sometimes called a C corp, is a legal entity that's separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures.
What is corporation in a business?What is a Corporation? A corporation is a business entity that is owned by its shareholder(s), who elect a board of directors to oversee the organization's activities. The corporation is liable for the actions and finances of the business – the shareholders are not.
Where the business has a separate legal identity from that of its owners?A separate legal entity separates a business from its owners, shareholders and other stakeholders. An LLC offers the same liability protection as a C-Corp as a separate legal entity. Unlike a sole proprietorship, an LLC separates the owner from the business and protects them from personal liability.
Is a corporation a company?A corporation is always a company, but not all companies are corporations. The term company can refer to many different business structures, including: Sole proprietorship: A sole proprietorship operates with one individual who handles all business operations.
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