Corporations
Corporations are businesses owned by shareholders or stockholders who are persons who own stocks or ownership shares in the business. Businesses become corporations when the government entity, usually a state agency, lends approval to the articles of incorporation. Corporations are legal entities or legal persons, also called “artificial persons” that conduct their business in their own name. Corporations conduct their business and exist separate from their owners.
From a legal standpoint, there are several differences between corporations and sole proprietorships. The major differences have to do with the liability of the people investing their assets in the business should it get into debts which it cannot pay.
According to law, investors or shareholders in corporations cannot lose their assets because the corporation has debts. If a business goes bankrupt and the structure is that of a sole proprietorship or a partnership, creditors can take the personal assets of the proprietor or the partners to satisfy the debts. On the other hand, if a corporation goes bankrupt, creditors cannot take the personal assets of those who have purchased shares in the corporation.
For this reason, corporations are the favored choice of business structure today. Corporations are legal persons, and they have many of the rights of a natural person. For example, corporations can own property, hire people, enter into contracts, sue and be sued, hold assets, and can govern their internal affairs. Business corporations today have additional rights. Shares can be bought and sold without affecting the corporations’ existence. Corporations can continue to exist in spite of the withdrawal of any or all of its shareholders. The concept of limited liabilities for shareholders of corporations is another modern business corporation characteristic.
In addition to business corporations, there are some other common types of corporations today. Municipal corporations for example are those set up to oversee a governmental entity. The term municipal or municipality is used primarily in the United States. Municipal corporations usual are city governments placed under a charter and having filed articles of incorporation with the state government entity responsible for filing those corporation papers. The State agency is typically the Secretary of State’s office, but other states have corporation commissions or divisions or departments.
Corporations which are formed for charitable purposes are called non-profit or not-for-profit corporations and are regulated in a slightly different manner than for-profit corporations. They still provide limited liability for the owners—often foundations, churches or trusts--but must qualify under certain tax code requirements to be incorporated.
by Nathan.Smarty 19 years ago