A corporation is an artificial legal entity, technically, a juridical person which, while made up of a number of natural persons or other legal entities, has a separate legal identity from them. Being a legal entity the corporation obtains legal rights and duties. The main features of incorporation includes: limited liability, meaning that the possible losses cannot exceed the amount which they added to the corporation as dues or paid for shares.
The economic justification for this lies in the fact that it permits anonymous trading in the shares of the corporation by virtue of removing the corporation’s creditors as a stakeholder in such a transaction. Without limited liability, a creditor would not likely permit any share to be sold to a buyer of at least the same creditworthiness as the seller. Second is perpetual lifetime – the assets and structure of the corporation survive beyond the lifetime of any of its members or agents.
This allows for permanence and collections of capital, which thus becomes available for investment in projects of a better amount and over a longer term than if the corporate assets remained subject to dissolution and distribution. It is imperative to note that the “perpetual lifetime” feature is a sign of the limitless possible period of the corporation’s existence, and its accumulation of wealth and thus power. In theory, a corporation can have its charter revoked at any time, putting an end to its existence as a legal entity.
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Nevertheless, in practice, dissolution only occurs for corporations that request it or fail to meet annual filing requirements. Third is ownership and control – humans and other legal entities composed of humans, such as trusts and other corporations, can have the right to vote or share in the profit of corporations. In the case of for-profit corporations, these voters hold shares of stock as proof of ownership of the corporation, and are thus called shareholders or stockholders.
When no stockholders exist, a corporation may exist as a non-stock corporation, and instead of having stockholders, the corporation has members who have the right to vote on its operations. If the non-stock corporation is not operated for profit, it is called a not-for-profit corporation, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not provided to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals Corporations were created by special charter of governments.
These are usually registered with the state, province, or national government and become regulated by the laws enacted by that government. Registration is the main prerequisite to the corporation’s assumption of limited liability. As part of this registration, it must in many cases be required to designate the principal address of the corporation as well as a registered agent, a person or company that is designated to receive legal service of process. As part of the registration, it may also be required to designate an agent or other legal representative of the corporation depending on the filing jurisdiction.
A corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors. A board of directors governs a corporation on the behalf of the members. The corporate members elect the directors, and the board has a fiduciary duty to look after the interests of the corporation. The corporate officers such as the CEO, president, treasurer, and other titled officers are usually chosen by the board to manage the affairs of the corporation.
Corporations can also be controlled (in part) by creditors such as banks. In return for lending money to the corporation, creditors can demand a controlling interest analogous to that of a member, including one or more seats on the board of directors. Creditors are not said to “own” the corporation as members do, but can outweigh the members in practice, especially if the corporation is experiencing financial difficulties and cannot survive without credit.
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