The term corporation comes from the Latin corpus, which means body. Historically, in England, the term corporation was also used for the local government body in charge of a borough. A corporation is a body–it is a legal person in the eyes of the law. It can bring lawsuits, can buy and sell property, contract, be taxed, and even commit crimes.
Its most notable feature: a corporation protects its owners from personal liability for corporate debts and obligations–within limits.
A corporation has perpetual life. When shareholders pass on or leave a corporation, they can transfer their shares to others who can continue a corporation’s business. A corporation is owned by its shareholders, managed by its board of directors, and in most cases operated by its officers. The shareholders elect the directors, who in turn appoint the corporate officers. In small corporations, the same person may serve multiple roles–shareholder, director, and officer.
Corporations are ideal vehicles for raising investment capital. A corporation seeking to raise capital need only sell shares of its stock. The purchasing shareholders pay cash or property for their stock, and they then become part owners in the corporation. Of course, the sale of corporate stock is heavily regulated by the U.S. Securities and Exchange Commission and by state securities laws.
A corporation’s shareholders, directors, officers, and managers must observe particular formalities in a corporation’s operation and administration. For example, decisions regarding a corporation’s management must often be made by formal vote and must be recorded in the corporate minutes. Meetings of shareholders and directors must be properly noticed and must meet quorum requirements. Finally, corporations must meet annual reporting requirements in their state of incorporation and in states where they do significant business.
Advantages of the Corporation
Disadvantages of the Corporation