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What is a Corporation?

A corporation is a legal person that can be created under state law. As a person, a corporation has certain rights and obligations, including the right to do business in its own name and the obligation to pay taxes. Some laws use the words "natural persons." A natural person refers only to human beings. A corporation can only be referred to as a "person" under the law, and is never referred to as a "natural person."

Business corporations were invented hundreds of years ago to promote risky ventures, such as voyages to explore the new world. Prior to the use of corporations, if a venture failed, persons who invested in it faced the possibility of unlimited liability. By using a corporation, many people were able to invest fixed sums of money for a new venture, and if the venture made money, they shared the profits. If the venture failed, the most they could lose was their initial investment.

The reasons for having a corporation are the same today. Corporations allow investors to put up money for new ventures without the risk of further liability. While our legal system is making people liable in more and more situations, the corporation remains one of the few shields from liability that has not yet been abandoned.

Before forming a corporation, you should be familiar with some common corporate terms that are used in the text.

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