What is a Corporation?
A corporation is a formal organization associated
with a publicly registered charter. Corporations are companies that are
typically large in size. A corporation’s business model entails the creation or
delivery of a specified product or service to a particular consumer base. The
majority of corporations are created to earn a profit for the owners, officers,
and shareholders (for public corporations) of the business.
A corporation is a separate legal entity. This
formation allows a corporation to possess its own privileges and distinct
liabilities. Corporations are a fundamental aspect of a capitalistic society
and a competitive market. In exchange for a
unique service or product, a corporation will seek a profit through the
purchase of their goods or through the investment in stock or other forms of
Corporations are developed in accordance with
corporate law. The rules established through this breadth of law balance the
interests of the operators, shareholders, the consumer base, creditors, and all
employees associated with the corporation.
Corporations may be structured in a variety of
ways, but in most instances, a corporation will possess limited liability. If a
corporation goes insolvent, the brunt of the financial loss is transferred over
to the shareholders and employees of the entity. The shareholder’s investment
in the corporation decreases proportionately with the entity’s struggles and
the employees will suffer from cutbacks or mass layoffs.
All liabilities associated with the corporation’s
debts will be handled by the operators of the corporation. If the corporation
goes insolvent, the board of directors will be forced to fulfill their loan
requirements to the underlying creditors.
A corporation possesses a hierarchy. There are
employees who produce the particular good or service and a management team who
is responsible for upholding the financial aspects of the business model.
There are four core characteristics of a
corporation. All corporations possess: A legal personality, limited liability,
a centralized management team, and transferable shares.
A corporation may be structured in two distinct
forms: For-profit or not-for-profit entities. Most corporations develop a
profit-based model which will seek a profit (income outweighs liabilities)
through the delivery of a tangible item, good, or service. A not-for-profit
structure aims to produce a good or service that benefits society without
accruing profits for the corporation’s shareholders or officers.
Corporate law regulates and enforces laws on the
business models of corporations to ensure the delivery of moral and sound
business practices. Corporate law balances the legal implications and rights
for shareholders, creditors, employees, directors, and the consumer markets.
To carry out the regulations, the scope of law
attaches a legal personality to each corporation. Through the classification of
a “natural person” a corporation is liable to lawsuits and tax initiatives. In
essence, corporate law will treat a corporation as a human being. Corporate law
states that a corporation attaches a limited liability structure to the
shareholders of a business entity. As a result, if the company goes insolvent
the investors within the model will lose money in proportion to their initial
All corporations possess transferable shares. These
shares can be purchased or sold on listed exchanges. The control of the
business entity is placed in the hands of a board of directors.