What Is a Corporation?
WHAT IS A CORPORATION?
The corporation is the stalwart business entity most commonly formed for raising capital and limiting individual liability throughout the world. The corporation is a legal separate “person” which may live forever or be empowered to protect the shareholder from economic harm. It my own assets, sue or be sued, transfer its ownership easily, borrow money, mortgage its assets, and file bankruptcy. A board of directors and corporate officers remove day to day management from the hands of the owners (shareholders). Shareholders elect the board at shareholder meetings.
GENERAL CHARACTERISTICS OF CORPORATIONS
Corporations are separate entities–a corporation is a separate legal entitities formed to be a “fictitious legal” person. Corporations have easy transfer of ownership and assignment of equity.
Corporations have very limited liability–owners (shareholders) are insulated from debts and liabilities of the corporation by state law. Certain provisions must be met, however in order to preserve the insulation from liability but simply following the bylaws of the corporation is normally enough to satisfy limiting liability.
Corporations are created through the filing of Articles of Incorporation with the Secretary of State to form the entity.
Corporations may engage in capital generation-; the corporation may borrow money, issue bonds, sell common and preferred stock and enter into investment contracts, which may include the purchase of real estate or equipment; in short, anything that a persona can do a corporation may do also.
Corporations have unlimited continuity of life; the corporation may live forever without interruption by death of shareholders, directors or officers.
CORPORATIONS OFFER MANY BUSINESS ADVANTAGES
The “For-Profit” or “C” Corporation is the most advantageous method of establishing a business entity.
Limited liability–no shareholder; officer or director may be held liable for debts of the corporation unless corporate law was breached.
Capital generation–may sell common or preferred stock, issue bonds, borrow money, mortgage assets, or contract for many types of financing.
Continuity of life–the entity exists forever so long as corporate regulations are met. No need to wind up operations if an owner or manager dies.
Ease of ownership transfer–the assets may be sold, transferred, pledged, or mortgaged simply by using stock.
Centralized management–practical control of business is performed by officers at the direction of the board of directors.
DISADVANTAGES OF CORPORATIONS
Corporations have few disadvantages, all of which may be easily overcome. For example double taxation can occur when corporate profits are taxed at the entity level and are returned to investors as dividends to be taxed again as individual income. Family and “closely held” corporations frequently return money to investors by other means thereby avoiding the double tax and such financial protection methods are very easy and legal to use.