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Home | Business Formations | Incorporation

Incorporation

1. Definition of a Corporation

A corporation is a separate and distinct legal entity. This means that a corporation can open a bank account, own property and do business, all under its own name. A corporation is managed by a board of directors, which is responsible for making major business decisions and overseeing the general affairs of the corporation. Just as representatives in Congress are elected by voters, directors are elected by the shareholders of the corporation. Officers, who run the day-to-day operations of the corporation, are appointed by the directors.

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The primary advantage of a corporation is that its owners, known as stockholders or shareholders, are not personally liable for the debts and liabilities of the corporation. For example, if a corporation gets sued and is forced into bankruptcy, in most cases, the owners will not be required to pay the debt with their own money. If the assets of the corporation are not enough to cover the debts, the creditors cannot, in most circumstances, go after the shareholders, directors or officers of the corporation to recover any shortfall.

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