What is a Corporation?
A corporation is a business structure. For example, McDonalds Corporation and Microsoft Corporations are corporations. A corporation stands in contrast to other business structures such as a limited liability company, partnership, and sole proprietorship.
A corporation is the oldest business structure (dating back to Roman law) and is an excellent structure for governing a business with many owners and decision-makers.
Corporation 101
These are the key concepts in really understanding what makes a corporation what it is:
- A corporation is a “legal entity”.
- In the eyes of the law corporations are also legal entities like you and I - they can enter into contracts and be sued. Corporations are entirely separate legal entities from the people who create, own, and run them.
- A corporation provides “limited liability”.
- If you sued a corporation and won, you could take the corporation’s assets but not the personal assets of its owners or managers. They have limited liability, which means they only financially risk the amount they invested in the corporation.
- A corporation is created by filing “articles of incorporation”.
- A corporation begins to exist when the state approves a legal document called the articles of incorporation. This document sets forth the corporation’s name, purpose, registered agent, initial directors, and other pertinent information for the state to create it.
- A corporation is governed by its “state of domicile”.
- The U.S. state in which the “articles of incorporation” are filed is the corporation’s state of domicile. The corporation is governed by the laws of the corporations code of that state. The corporation must file a foreign registration in each other state it wishes to conduct business.
- A corporation is administered by its “corporate bylaws”.
- The corporate bylaws supplement the state corporations code in defining how the corporation is run. This legal document states how meetings are called to order, voting is used to make decisions, ownership is documented, and other logistics of how the corporation is run.
- A corporation is owned by its “shareholders”.
- The shareholders invest money in the corporation in hope of a profit. They aren’t involved in the day-to-day operations of the corporation but often have an annual meeting and “vote their shares” on important decisions. In nonprofit corporations, the corporation might have members instead of a shareholders.
- A corporation is led by its “board of directors”.
- The board of directors provides leadership decisions and direction for the corporation. They hold meetings and vote to approve major decisions for the corporation. They are often elected by the shareholders so they are accountable for making profitable decisions.
- A corporation is led by its “officers”.
- The president (CEO), vice president, treasurer, and secretary are charged with running the day-to-day business of the corporation. They execute the direction that the board sets.
Key Takeaways:
- A corporation is a business structure, in contrast with an LLC, partnership, or other legal structures of a business.
- A corporation is created by filing articles of incorporation.
- A corporation consists of directors, officers, and shareholders.
