Definition: A corporation is a legal form of business that is separate from its owners. In other words, it’s a business that is a separate legal entity from its shareholders.
The basic corporate structure consists of the shareholders, board of directors, and officers. The shareholders are the investors and people who actually own the company. They purchased the stock and legally own the assets of the business. Since there are often thousands or millions of shareholders, they can’t run the business on a day-to-day basis.
What Does Corporation Mean?
Instead, they gather at least once a year and elect a number of individuals to the board of directors. The board has many responsibilities, but the main one is to appoint the officers of the company. The CEO, CFO, and COO are not elected by the shareholders themselves, but the board appoints them to run the day-to-day operations of the company.
Example
A corporation is the most common form of business in the US because of its ease of formation and limited liability protection. Corporations are established when the owners, called shareholders, file the articles of incorporation with a state. Each state has slightly different rules that govern how these companies must operate in their state and what fees they must pay.
The articles of incorporate lay out the structure of the company including the number of shares that will be authorized as well as the meeting and board of director information.
A corporation is unique to other forms of business like sole proprietorships because it is recognized as a separate legal entity from its shareholders. Thus, it has the benefits of limited liability protection. This means that third parties can’t file a lawsuit against the company and collect damages from the shareholders. The owners will never be held personally liable for what the company does. The most they can lose is their investment in the business if the company goes bankrupt.
