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A corporation is a legal entity (distinct from a natural person) that often has similar rights in law to those of a natural person. Civil law systems may refer to corporations as "moral persons;" they may also go by the name "SA" (anonymous society) or something similar, depending on language (see below).

In modern practice, many people use the word "corporation" narrowly to refer to a commercial entity set up in accordance with a governmental framework. However, churches, interest-groups (both can form as not-for-profit corporations or can exist as voluntary associations), cities and townships (often chartered as public corporations), among others, may also have historically lengthy corporate identities.

Table of contents
1 General
2 Corporate taxation
3 Other related types of business entities
5 See also
6 External links


Legal status

Within the official framework, a corporation, or in some jurisdictions a company, is a legal, artificial entity with or without shareholders, who may be humans, trusts, or other corporations. When no stockholders exist, a corporation may be a "non-stock corporation", a "membership corporation", or similar — this second type of corporation counts as a not-for-profit corporation. In either category, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not vouchsafed to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals. Corporations receive a charter from a state, and become regulated by the laws enacted by that state. The law of the state in which a corporation operates (if different from the state in which it was formed) will generally regulate its activities.

Certain jurisdictions do not allow the use of the word "company" alone to denote corporate status, since the word "company" may refer to a partnership or to a sole proprietorship.

Some of the designations used to signify corporation status that one may in some states adopt only with state sanction include:

Some jurisdictions require that one of a list of terms or abbreviations appear in the corporate name. Generally speaking, any corporation, whether domestically created or foreign (from another jurisdiction) must register in order to conduct business in that jurisdiction. As part of this registration, it must designate the principal addresss of the corporation, i.e. where to contact it in the event of legal process.

The law typically views a corporation as a fictional person, a legal person, or a moral person (as opposed to a natural person); United States law recognises this as corporate personhood. Under such a doctrine, obviously a legal fiction, a corporation enjoys many (or all) of the rights and obligations of individual citizens, such as the ability to own property, sign binding contracts , pay taxes, have certain (although not all) constitutional rights, and otherwise participate in society.

Typically a board of directors governs a corporation; that 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 -- manage the affairs of the corporation.

Benefits of forming a corporation

The most salient features of incorporation include:
(1) Limited Liability. Unlike in a partnership, stockholders of a corporation hold no liability for the corporation's debts and obligations. As a result their "limited" potential losses cannot exceed the amount which they paid for the stock. Not only does this allow businesses to engage in risky enterprises, but limited liability also forms the basis for trading in corporate stock. Without the limitation on the amount that an investor can lose, the time and effort required to determine whether the stock could wipe the investor out would render the stock market very illiquid (as one can observe in the very illiquid market for partnership interests). It is possible however, for a lender to require a personal guarantee on a loan to a corporation, introducing personal liability.

(2) Perpetual Lifetime. The assets and structure of the corporation exist beyond the lifetime of any of its shareholders, officers or directors. This allows for stability of capital, which thus becomes available for investment in projects of a larger size and over a longer term than if the corporate assets remained subject to dissolution and distribution. This feature also had great importance in the Medieval period, when land donated to the Church (a corporation) would not generate the feudal fees that a lord could claim upon a landholder's death. In this regard, see Statute of Mortmain.


Early corporations of the commercial sort -- such as the
Dutch East India Company -- formed under frameworks (set up by governments of states) to undertake tasks which appeared too risky or too expensive for individuals or the governments to embark upon. Such corporations came to play a large part in the history of corporate colonialism.

Kenneth Pomeranz, an economic historian, argues that the need to perform pseudo-governmental operations (such as the waging of war) accounts for the development of this economic structure in Europe but not in China or in the Middle East.

The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun, Sweden, reportedly obtained a charter from King Magnus Eriksson in 1347.

Non-profit organizations

In modern economic systems, the corporate form of governance commonly appears in a wide variety of business and non-profit activities. Though the laws governing these creatures of statute often differ, the courts often interpret provisions of the law that apply to profit-making enterprises in the same manner (or in a similar manner) when applying principles to non-profit organizations -- as the underlying structures of these two types of entity often resemble each other.

National features

United States

In the
United States several corporate forms exist; the name of "corporation" generally applies to a business, run for profit, to which one of the states of the United States (or other governmental body with that power, including Congress and Puerto Rico) has granted a corporate charter. The federal government of the United States usually does not grant corporate charters to businesses (exceptions include public corporations such as the Post Office and Amtrak). American corporations typically charter as a Delaware Corporation in Delaware, which charges no tax on activities outside the state and has courts experienced in commercial law. Corporations set up for privacy or asset protection often charter in Nevada, which allows setting them up with no record of who owns them.

Historically, most U.S. states issued charters for fixed lengths of time (for example, a manufacturing corporation might receive a charter good for forty years), and only by an act of the legislature. In theory, a limited charter forced corporations to remain accountable to government (i.e. to the community) for the special privileges granted to them. Investors protested that it actually led to unhealthy amounts of political payoffs and graft. Most states now charter unlimited-term corporations for a small fee, and possibly for a yearly tax.


In Canada both the federal government and the provincess have corporate statutes, and thus a corporation may have a provincial or a federal charter. Many older corporations in Canada stem from Acts of Parliament passed before the introduction of general corporation law.

Related topics: Preferred stock, Corporate governance, Bylaw, Delaware corporation, Commercial law, Stock certificates

Corporate taxation

In the United States

In the United States business corporations owe taxes according to several different categories. The United States
Internal Revenue Service classifies organizations as associations (taxable as corporations), partnerships (not limited to common-law partnerships) or trusts ("ordinary trusts"). [see 26 CFR §§301.7701-2 through 301.7701-4]

The federal taxation system recognises two types of corporations for taxation purposes:

C-Corp - The most common form of corporation, the C-corporation has few ownership restrictions and must pay  corporate taxes; all publicly-traded corporations have C-corporation status. C-corporations pay income taxes just as an individual does, and C-corporations do not receive a deduction on dividends they pay to stockholders. This leads to the so-called "double-taxation" of corporate profits: a given profit becomes subject to income tax twice, once at the corporate level, as an item of income, and once at the stockholder level, as a dividend.

S-Corp - Commonly used by small business proprietors, the S-corporation pays no corporate taxes, but instead passes profits and losses directly to its owners (the stockholders) who declare such profits and losses as part of their personal income taxes). In this manner S-coporations resemble partnerships, although some subtle differences in taxation exist. As a result, S-corporations do not become subject to the "double-taxation" that C-corporations enjoy. However, not all corporations qualify for S-corporation treatment. An S-corporation must generally have no more than 75 stockholders, all of them natural persons (not other corporations or entities), and all of them residing in the United States; moreover, the S-corporation can only issue a single class of stock.

Other related types of business entities

Partnerships, limited partnerships, and limited liability partnerships

A partnership comprises a contractual agreement between individuals and/or corporations which share profits and losses. It resembles a sole proprietorship, but it has more than one member, each called a "partner". A partnership does not constitute a separate entity and the partners all retain liability for the debts of each fellow-partner (if contracted to on behalf of the partnership). Usually a partnership will not survive the death of one of the partners (though it may undergo reorganization at that time).

A partnership can have general partners and limited partners (also known as "silent partners"). General partners retain liability for all of the debts and obligations of the partnership. Limited partners, on the other hand, retain liability only for the amounts they have specifically agreed to contribute to the partnership pursuant to the partnership agreement.

A limited liability partnership (LLP) comprises a partnership composed entirely of limited partners without any general partner. For historical reasons most U.S. jurisdictions restrict limited liability partnership to associations of professionals such as lawyers and doctors. However, this restriction has become fairly meaningless, since a limited liability company can achieve the same legal result.

Limited liability company

The limited liability company (LLC) resembles a partnership in that it provides a very flexible structure. A limited liability company has members, rather than partners, and is governed by an operating agreement, rather than a partnership agreement. Otherwise an LLC very much resembles a partnership in that the members can contractually arrange in the operating agreement for the management and economic provisions that they wish.

Many lawyers and businesspersonss prefer the limited liability company form of taxation because of its extreme flexibility and favorable tax treatment.

Business trusts

One other type of business entity can exist: the business trust, most often used as a vehicle for investment purposes. Only a few jurisdictions allow for the creation of business trusts, most notably Massachusetts; many mutual funds function as Massachusetts business trusts. In many jurisdictions the business trust has become popular as a vehicle for investing in real estate, which are known as real estate investment trusts or REITs (pronounced reets).

Taxation of non-corporate entities

Since 1996, United States partnerships and limited liability companies have had the right to elect whether the United States government will treat them as corporations or as "flow-through" entities under the IRS' check-the-box regulations (see form 8832). The income tax assessment process does not treat a flow-through entity as a person for income tax purposes; instead it divides its income and loss (and every other tax attribute) among its partners, who report them to the IRS. Some limits exist on an entity's ability to elect flow-through treatment: most importantly, a publicly-traded company cannot elect flow-through treatment; in practice this means that publicly traded corporations remain subject to a more stringent tax régime than do closely-held companies.


See also

External links