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Corporation



Definition

A corporation is a legal entity created by individuals, stockholders, or shareholders, with the purpose of conducting business. It is considered separate from its owners and therefore has its own rights, privileges, and liabilities. They have the ability to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.

Phonetic

The phonetic pronunciation of the word “Corporation” is: /ˌkɔːr.pəˈreɪ.ʃən/

Key Takeaways

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  1. Corporations are legal entities that are separate from their owners and have similar rights and responsibilities as individuals.
  2. They have the ability to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.
  3. Ownership of a corporation is represented by shares of stock, which can be privately held or publicly traded on a stock exchange.

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Importance

The term “corporation” is crucial in business and finance as it represents a fundamental business structure with distinct legal and financial attributes. As a separate legal entity, a corporation has the ability to own assets, assume debt, enter contracts, sue or be sued directly, independent of its shareholders who possess limited liability for the corporation’s liabilities or debts. Moreover, corporations can raise funds more efficiently through the issuance of stocks. These characteristics make a corporation an attractive business model for investors and entrepreneurs, protecting personal assets and enabling growth and expansion opportunities while maintaining relative financial stability. This provides a basis for much of the economic activity within a capitalist system.

Explanation

A corporation is a legal entity used by one or more people to conduct business. The primary purpose of a corporation is to establish a structure that allows businesses to operate and engage in commercial activities such as selling goods or services, managing assets, and employing individuals. This structure serves as a separate entity from the individuals who own, manage, and control it – which means the corporation itself can enter into contracts, accrue debt, and sue or be sued in a court of law.On the financial aspect, a corporation can raise funds through the issuance of stocks, an attractive option that lures investors. The investors or shareholders obtain ownership in the corporation and stand to benefit from its potential success in the form of dividends or increased stock value. Simultaneously, corporations limit the personal liability of shareholders, whose losses, if the company fails, are limited to the extent of their investment in the company’s stock. Unique to its structure, this serves as an incentive for investment, thus providing the corporation with the necessary capital to start, grow, or continually operate.

Examples

1. Apple Inc. – Apple Inc. is one of the biggest publicly-traded corporations globally and known for products like the iPhone, iPad, and Mac computers. This multinational tech corporation was established in 1976 and has its headquarters in Cupertino, California.2. Amazon.com, Inc. – Founded by Jeff Bezos in 1994, Amazon is an American multinational corporation focusing on e-commerce, digital streaming, artificial intelligence and more. It’s one of the world’s largest corporations by revenue and market capitalization. 3. Toyota Motor Corporation – A Japanese multinational automotive manufacturer, Toyota is one of the largest automobile manufacturing companies in the world. It was established in 1937 and has grown to become a leading player in the global automobile industry.

Frequently Asked Questions(FAQ)

What is a corporation?

A corporation is a legal entity that is separate and distinct from its owners. It has the rights and responsibilities that an individual possesses; it can enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.

How is a corporation formed?

A corporation is formed under the laws of the state in which it is registered. To form a corporation, you’ll need to establish your business name and register your legal name with your state’s Secretary of State.

Who are the shareholders of a corporation?

Shareholders are the owners of a corporation. They buy shares of stock, which entitles them to a share of the corporation’s profits.

What is a ‘public corporation’?

A public corporation is a company that has sold all or a portion of itself to the public via an initial public offering (IPO), meaning shareholders have claim to part of the corporation’s assets and profits.

What are the key advantages of a corporation?

Key advantages of a corporation include limited liability, the ability to raise substantial capital, perpetual existence, and ease of ownership transfer.

What is limited liability in a corporation?

Limited liability means that shareholders’ responsibilities for the corporation’s debts and obligations are limited to the value of the shares they own. The personal assets of shareholders are protected.

What is the role of the Board of Directors in a corporation?

The board of directors is elected by the shareholders to oversee the management of the corporation. They make decisions on major company issues, including corporate policies, strategic direction, and they appoint the company’s executive officers.

What is a ‘private corporation’?

A private corporation is a company that is not publicly traded and is privately held. This means that the company’s stock is not available for purchase by the general public.

How are corporations taxed?

Corporations are taxed on their profits. If the corporation also pays dividends to its shareholders, those dividends are taxed again on the shareholders’ personal tax returns.

Can a corporation be run by a single person?

Yes, many states allow the formation of a single shareholder corporation. This person can make decisions on behalf of the corporation and hold positions like CEO and President.

Related Finance Terms

Sources for More Information


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