What is a Corporation?

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.

  • Corporation: Introduction
    Each year, hundreds of thousands of corporations are registered in this country, and it is not a coincidence that the largest businesses in the world are corporations. The corporation is a popular method of doing business for most people because it offers many advantages over partnerships and sole...
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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...
    read more
  • Articles of Incorporation
    The Articles of Incorporation (in some states referred to as the Certificate or the Certificate of Incorporation) is the document that is filed with the appropriate state agency to start the corporation. In most states, this agency is the Secretary of State but may be called the Department of State...
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  • Shareholder
    A shareholder is a person who owns stock in a corporation. In many small corporations, the shareholders act as the officers and directors, but many shareholders do not have these roles in large corporations. Sometimes small corporations have shareholders who are not officers, such as when the stock...
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  • Board of Directors
    The board of directors is the controlling body of a corporation that makes major corporate decisions and elects the officers. It usually meets just once a year. In most states, a corporation can have one director (who can also hold all offices and own all the stock). In a small corporation, the...
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  • Officers
    Officers are appointed by the board of directors to run the day-to-day operations of the corporation. Commonly, and by law in many states, a corporation will have at least three officers: President Treasurer or Chief Financial Officer Secretary Officers do not have to be shareholders or directors,...
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