Corporation
Definition:
A corporation is a legal entity that is separate and distinct from its shareholders. It is a separate entity that can own property, enter into contracts, and sue and be sued in its own name. Shareholders own shares of stock in the corporation, which represent their ownership interest.
Key Features:
- Separate Legal Entity: The corporation is a distinct legal entity from its shareholders. It has its own name, separate assets and liabilities, and can act as a separate entity.
- Limited Liability: Shareholders have limited liability for the corporation’s debts. They are not personally liable for the corporation’s obligations unless they are involved in fraud or negligence.
- Corporate Governance: Corporations are governed by a board of directors and officers who are elected by shareholders. They are responsible for overseeing the corporation’s operations and ensuring its compliance with laws and regulations.
- Shareholders: Shareholders own shares of stock in the corporation and are entitled to vote on certain corporate matters, such as electing directors and approving major transactions.
- Capital Structure: Corporations typically have a capital structure that includes common stock and preferred stock. Common stock is the type of stock that is sold to the general public, while preferred stock has a higher claim on the corporation’s assets and earnings.
- Taxation: Corporations are taxed as separate entities from their shareholders. They are liable for income taxes on their business income, as well as other taxes, such as capital gains tax and corporate dividends tax.
Types of Corporations:
- Publicly Traded Corporations: Corporations that sell their stock to the public on a stock exchange.
- Private Corporations: Corporations that are owned by a private group of shareholders and are not traded on a stock exchange.
- Non-Profit Corporations: Corporations that are established for charitable purposes and do not generate profit for shareholders.
Advantages:
- Limited liability for shareholders
- Ability to raise large amounts of capital
- Tax advantages
- Ability to operate as a separate entity
Disadvantages:
- Complex governance structures
- Higher costs compared to other business entities
- Greater regulation
Common Examples:
- Apple Inc.
- Microsoft Corporation
- Toyota Motor Corporation
FAQs
What do we mean by a corporation?
A corporation is a legal entity separate from its owners, created under the laws of a state or country. It can enter into contracts, own assets, and incur liabilities, providing limited liability protection to its shareholders.
Is a corporation the same as a company?
Not exactly. A corporation is a specific type of company structured as a legal entity with limited liability for its owners. A company is a broader term that can include other types of business structures, such as sole proprietorships or partnerships.
Who owns a corporation?
A corporation is owned by its shareholders, who invest capital in exchange for ownership shares. Shareholders elect a board of directors to oversee the corporation’s management.
What is an example of a business corporation?
Apple Inc. is an example of a corporation. It operates as a publicly traded company with a formal legal structure, limited liability, and shareholders who own its stock.
What is the difference between corporate and business?
“Corporate” generally refers to large businesses or entities structured as corporations, while “business” is a broader term encompassing any entity engaged in commercial activities, regardless of size or legal structure.
