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What is a Corporation?

2016-11-10T17:21:42+00:00

The term 'Corporation' is included in the Corporate Finance edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

A corporation refers to a business entity where it is distinctive and separated from the owners. Such corporations may take on many responsibilities similar to individuals. They can borrow and loan out money, make and execute contracts, hire and terminate employees, sue or become sued, pay taxes, and own cash and assets. This is why corporations are many times referred to by the phrase of legal person.

A corporation is a legal construct that controls and runs businesses of all types all over the globe. There may be differing legal arrangements from one government jurisdiction to the next, but they all have the attribute of a limited liability. With this protection, shareholders enjoy important rights like benefitting from dividends as a result of profits and price appreciation from successful business endeavors. While enjoying these advantages, limited liability means that they do not carry any of the personal responsibility for payment of the company’s debts.

Practically every famous business and brand in the world is a part of a corporation. This includes such internationally recognized entities as Coca-Cola, McDonalds, Microsoft, and Toyota Motors. Corporations can also do business under a different name. A classic example of this is Alphabet Inc. that runs Google.

Corporations are established as a group of stock holders choose to incorporate. They pursue this follow up after a common goal in their ownership of the business. Such corporations may be charitable as well as for profit. The overwhelming majority of such companies are founded with the ambition of earning positive returns for the stock holders. These shareholders own some percentage of the corporation in exchange for paying for their shares. If they obtain them directly from the company, then their payments remit to the treasury of the company itself.

Corporations sometimes possess thousands of shareholders, especially when they are publicly traded companies. These entities could also have only a few or even one shareholder. The most common corporations within the United States are called “C Corporations.”

Shareholders use their one vote per share to vote for the company board of directors every year. This group is responsible for naming the management which they oversee. The managers run the daily activities of the company. It is the corporation’s board of directors which must carry out the business plan of the entity. They also do not bear responsibility for the company’s debts, but have a fiduciary responsibility to care for the corporation. If they do not fulfill the duty faithfully, they may become personally liable for mistakes. There are tax statutes that allow for board of directors members to be personally liable.

As these corporations fulfill their goals, they can be wound down through a process also known as liquidation. In this process, they appoint a liquidator to sell off the company assets, pay the creditors, and share out all cash assets which remain among the stockholders. This can be done as a result of an involuntary or a voluntary procedure. Creditors can force liquidation when a company can no longer pay its debts. This often leads to corporate bankruptcy.

The term 'Corporation' is included in the Corporate Finance edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.