Corporation: What It Is and How to Form One (2024)

FAQs

Corporation: What It Is and How to Form One? ›

A corporation is created when it is incorporated by a group of shareholders with a common goal who share ownership represented by their holding of stock shares.

A corporation is created when it is incorporated by a group of shareholders with a common goal who share ownership represented by their holding of stock shares.

Definition of corporation

A corporation is a legally established entity that can enter into contracts, own assets and incur debt, as well as sue and be sued—all separately from its owner(s). Because it is defined by law, a corporation can technically exist forever.

Historically, corporations were created by a charter granted by the government. Today, corporations are usually registered with the state, province, or national government and regulated by the laws enacted by that government. Registration is the main prerequisite to the corporation's assumption of limited liability.

The biggest difference is that corporations have “shareholders” and LLCs have “members.” Corporations tend to have many owners, while LLCs are now the most common small business entity type.

All of the money collected by a corporation during the reporting period from services rendered or sales of a product is considered top-line revenue. From revenue, a company will pay its expenses. Money left after expenses are paid is considered to be the company's profit.

Today, the standard answer is that a corporation's purpose is to benefit its shareholders – academics speak of the “shareholder primacy norm,” and many talk of corporate managers' task as “shareholder wealth maximization.” Even apparently selfless corporate acts, such as charitable donations, are justified as ...

Furthermore, corporations are usually owned by multiple people and the ability to exchange ownership is easy, while companies can be owned by one individual and ease of transferring ownership depends on the business structure.

Shareholders are actual owners of a corporation, while the board of directors manages the corporation.

What are the benefits of starting a corporation? ›

The owners in a corporation are referred to as shareholders; if operating as a C corporation, there can be an unlimited amount of owners. However, if operating an S corporation, which is a subset of a C corporation, then there can only be a maximum of 100 owners.

Forming a corporation is more complicated and more expensive than forming a sole proprietorship or a simple partnership because you must file paperwork with the Secretary of State in the formation state. (This is also true if you operate as a limited liability company.)

Advantages of a corporation include personal liability protection, business security and continuity, and easier access to capital. Disadvantages of a corporation include it being time-consuming and subject to double taxation, as well as having rigid formalities and protocols to follow.

Apple Inc., Walmart Inc., and Microsoft Corporation are all examples of corporations.

Second, a corporation has an unlimited life. Because the corporation is a separate legal entity, the corporation will continue to exist even if the shareholders die, directors or officers leave the business, or if the ownership of the business changes.

Shareholders are actual owners of a corporation, while the board of directors manages the corporation. The law acknowledges a corporation as a completely separate, legal entity.

A corporation, sometimes called a C corp, is a legal entity that's separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures.