Introduction To Business Corporations

A corporation is a legal entity in its own right and is separate from the individuals working within or owning it. A corporation is considered to be a legal ‘person’. They can hold property in their own name and can sue and be sued.

Publicly Held Corporations

Publicly held corporations are owned by shareholders who elect a board of directors to oversee primary responsibilities. Shares are sold on the open market to investors as an investment and the shareholders have little interest in managing the business.

Closed corporations

These are generally owned by family members or people who know each other. Shares are not traded on the open market.

The two main types of a corporation

  1. Standard, for-profit corporations
  2. Charitable, not-for-profit corporations.

Any profits generated by a corporation are taxed as the “personal income” of the company. Any income distributed to the shareholders as dividends or profits is then taxed again as the personal income of the owners.

Corporation – Advantages

  • Limited liability for the owner to debts or losses.
  • Individual shareholders’ liability is generally limited to the value of their own stock in the corporation.
  • Personal assets cannot be seized to pay for business debts
  • The corporation is an entity of its own and does not end when ownership changes.
  • It is easier to raise capital through the sale of stock.
  • Profits and losses belong to the corporation
  • Can be transferred to new owners fairly easily
  • The cooperation has a legal status of its own.

Corporation – Disadvantages

  • Complying with government and legal regulations can be costly.
  • Establishing a corporation can be expensive
  • To set up a corporate business requires complex paperwork
  • Income is generally taxed twice.

Note: A corporation is a legal entity doing business, and is separate from the individuals within the entity.

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Posted in Business Entities, Business Law.