Isabella Carter
Corporations are legal entities created by individuals, stockholders, or shareholders, with the purpose of operating for profit. They are formed by a group of people with a shared goal and can be a for-profit or not-for-profit entity. Corporations possess many of the same legal rights and responsibilities as individuals. They can enter into contracts, sue and be sued, own assets, remit federal and state taxes, and borrow money from financial institutions. The corporate structure that new business owners choose determines the legal, financial, and operational requirements of the business. There are various types of corporations, including C corporations, S corporations, and nonprofit corporations. These groups are often managed by an account manager and are composed of companies.
| Characteristics | Values |
|---|---|
| Legal entity | Separate from owners, with limited liability protection for shareholders |
| Tax status | Taxed at corporate level, and shareholders are taxed on dividends or distributions they receive (double taxation) |
| Management | Managed by a board of directors, elected by shareholders |
| Ownership | Easy transfer of ownership shares, publicly held corporations do not require approval from other stockholders to sell stocks or shares |
| Formation | Created by an individual or group with a shared goal, can be for-profit or not-for-profit |
| Structure | Formal structure with ranks or levels and fixed rules and procedures |
| Size | Large businesses with multiple shareholders |
| Purpose | To operate for profit |
| Non-profit corporations | Exempt from federal and state income taxes, donations are tax-deductible |
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What You'll Learn
Corporations can be formed by individuals or groups with shared goals
Corporations are legal entities that can be formed by individuals or groups with shared goals. They are separate from their owners and possess many of the same legal rights and responsibilities as individuals. Corporations can make a profit, be taxed, and be held legally liable. The corporate structure chosen by new business owners determines the legal, financial, and operational requirements of the business, as well as the control and liability of the owners.
There are several types of corporations, including C corporations (C corps), S corporations (S corps), nonprofit corporations, and public corporations. C corps are the most common type and are taxed at the corporate level. They offer limited liability protection to their shareholders, meaning their personal assets are usually not at risk for the company's debts. However, C corps can result in double taxation, as shareholders are also taxed on dividends received. S corps are designed to avoid double taxation, allowing profits and losses to be passed directly to owners' personal income without corporate tax rates. Nonprofit corporations, as the name suggests, do not operate for profit and are exempt from federal and state income taxes. They are formed for charitable, educational, or religious purposes and must operate for the public benefit. Public corporations, on the other hand, refer to publicly held corporations where stocks or shares can be easily traded in the market without requiring approval from other stockholders.
The process of forming a corporation involves incorporation, where legal documents are drafted to outline the primary purpose of the business, its name and location, and the number of shares and types of stock issued. This process gives the business entity protection from personal liability in the event of lawsuits or legal claims. Corporations are also required to establish corporate bylaws, outlining how the corporation will be structured and operated. They must hold board meetings, issue stock, and obtain an employer identification number (EIN) for tax purposes and opening bank accounts.
In summary, corporations can be formed by individuals or groups united by shared goals and interests. The choice of corporate structure depends on factors such as the size of the business, the number of owners or shareholders, tax implications, and the level of control desired by the owners. Corporations offer certain benefits, such as limited liability protection and access to capital, but they also come with complexities, including extensive record-keeping and potential double taxation.
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Corporations have legal rights and responsibilities like individuals
Corporations are considered legal persons and have many of the same legal rights and responsibilities as individuals. This concept, known as corporate personhood, has existed for millennia, and corporations have been viewed as artificial persons. In the eyes of the law, corporations are treated similarly to humans, with the ability to enter into contracts, own property, sue and be sued, and be held liable under civil and criminal law. This legal status allows corporations to possess and transfer property, as well as conduct commercial activities.
The concept of corporate personhood has been a subject of debate, with some arguing for the need to govern the granting of corporate rights based on the consequences. The treatment of corporations as juridical persons with legal rights has had significant implications. For example, individual shareholders are generally not legally responsible for the corporation's debts and actions, as the corporation is considered a separate legal entity. This limited liability protection extends to executives and managers, shielding them from personal liability for the company's liabilities, unless there is extreme misconduct.
The 14th Amendment, adopted in 1868, expanded the scope of corporate power rather than limiting it. While it granted the federal government power over states regarding the rights of freed slaves, it also resulted in corporations gaining equal protection under the law. This expansion of corporate rights has been controversial, with critics arguing for more cautious treatment of corporate power.
The formation of a corporation can be initiated by an individual or a group of people with a shared goal, resulting in a for-profit or non-profit entity. The business structure chosen by a corporation influences its legal, financial, and operational requirements, as well as the control and liability of its owners. Corporations, as separate legal entities, can make profits, pay taxes, and be held legally liable. They offer stronger protection to their owners from personal liability compared to other business structures, but they also come with higher formation costs and more extensive record-keeping requirements.
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Corporations can be for-profit or not-for-profit entities
Corporations are typically formed by a group of people with a shared goal, and they can be structured as for-profit or not-for-profit entities. For-profit corporations are subject to corporate taxes and have fewer restrictions on their financial activities. They can be owned by individuals or groups of people, and they can issue stock to shareholders. These shareholders elect a board of directors to manage the company. For-profit corporations can be complex to operate due to extensive record-keeping, operational processes, and reporting requirements.
On the other hand, not-for-profit corporations, or nonprofits, are formed for charitable, educational, religious, scientific, or other qualifying purposes. They are prohibited from distributing profits to anyone other than for the advancement of the organization and are exempt from federal and state income taxes. Nonprofits rely on donations, grants, and fundraising for revenue, and they must comply with stringent reporting guidelines. They are governed by a board of directors, who are responsible for ensuring the organization operates within legal boundaries and for its intended purpose.
When forming a corporation, there are various structures to choose from, such as a sole proprietorship, partnership, or limited liability company (LLC). The choice of structure depends on factors such as the number of owners, desired control, and liability protection. For example, a sole proprietorship offers total control and flexibility to the owner but exposes them to unlimited personal liability. In contrast, corporations and LLCs provide stronger protection from personal liability.
It is important to note that the requirements and specifics of each corporate structure can vary by state, so it is essential to research the specific laws and regulations in your desired state of operation.
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Corporations are managed by a board of directors
Corporations are complex entities that are formed by individuals, stockholders, or groups with a shared goal and can be structured as for-profit or not-for-profit entities. They possess legal rights and responsibilities akin to individuals, including the ability to enter into contracts, own assets, and be taxed. The management structure of a corporation is a crucial aspect that influences its operations and strategic direction.
Corporations are typically managed by a board of directors, who are responsible for overseeing the organization's activities and ensuring compliance with its mission and goals. This board is elected by the shareholders, who are the owners of the corporation. Each shareholder is entitled to one vote per share, and while they are not involved in day-to-day operations, they have the power to elect members of the board of directors or executive officers.
The board of directors plays a pivotal role in decision-making on major issues affecting the shareholders and creating policies that guide the management and daily operations of the corporation. They are responsible for hiring a professional management team to handle the day-to-day business operations. This delegation of duties allows the board to focus on strategic decisions and ensuring the corporation's activities align with its objectives.
In some cases, corporations may have a single shareholder, while others may have multiple shareholders. The presence of multiple shareholders can lead to a more complex management structure, as the board must balance the interests of various stakeholders. Additionally, the board of directors may also be held financially responsible for the corporation's liabilities, further emphasizing their crucial role in the corporation's governance.
The management structure of a corporation is a dynamic and evolving aspect, adapting to the changing needs and complexities of the business. The board of directors, through their elected authority, plays a pivotal role in steering the corporation towards its goals and maintaining its long-term success.
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Corporations can be publicly held or privately held
Corporations can be formed by an individual or a group of people with a shared goal and can be structured as for-profit or not-for-profit entities. They possess similar legal rights and responsibilities as individuals. For instance, they can make a profit, be taxed, and be held legally liable.
On the other hand, privately held companies are owned privately and are not required to disclose any information to the public. The company is usually owned by its founders, management, and/or a group of private investors. They are not owned by the public, so their executives and management do not have to answer to stockholders. The primary benefit of a privately held company is that the management team does not need shareholder approval before making company decisions.
It is important to note that the size of a company does not determine whether it is publicly or privately held. Many big-name companies are privately held, including Bloomberg, Dell, Mars, Cargill, Fidelity Investments, and Koch Industries.
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Frequently asked questions
A corporation is a legal entity that is separate from its owners, providing limited liability protection to its shareholders. It is created by an individual or group with a shared goal and can be a for-profit or not-for-profit entity.
There are three main types of business incorporations: C Corporation, S Corporation, and Nonprofit Corporation. C Corps are the most common type and are taxed at the corporate level and the individual level, resulting in double taxation. S Corps are designed to avoid double taxation, with profits passed directly to owners' personal income. Nonprofit corporations are formed for charitable, educational, or religious purposes and are exempt from federal and state income taxes.
An LLC, or Limited Liability Company, offers more flexibility in terms of management and control. Members can choose to manage the business themselves or appoint a manager. LLCs can have a single member or multiple members and protect individuals from personal liability. Corporations, on the other hand, require more extensive record-keeping and reporting and are typically more costly to form.
Corporations are owned by shareholders, who share ownership of the business through their holding of stock shares. Shareholders are not personally liable for the company's debts and liabilities. Ownership shares in publicly held corporations can be easily traded in the market without requiring approval from other stockholders.
Corporations are structured through corporate bylaws, which outline how the corporation will be run. They are required to name a board of directors, who are elected by the shareholders and tasked with making major decisions and creating policies. Corporations may also have a professional management team hired by the board of directors to handle day-to-day operations.
