corporation

Definition

The most common form of business organization, and one which is chartered

by a state and given many legal rights as an entity separate from its owners.

This form of business is characterized by the limited liability of its owners,

the issuance of shares of easily transferable stock, and existence as a going

concern. The process of becoming a corporation, call incorporation, gives the

company separate legal standing from its owners and protects those owners

from being personally liable in the event that the company is sued (a

condition known as limited liability). Incorporation also provides companies

with a more flexible way to manage their ownership structure. In addition,

there are different tax implications for corporations, although these can be

both advantageous and disadvantageous. In these respects, corporations

differ from sole proprietorships and limited partnerships.

Corporation
From Wikipedia, the free encyclopedia
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This article is about business corporations. For other uses, see Corporation
(disambiguation).

A corporation is an institution that is granted a charter recognizing it as a separate legal entity

having its own privileges, and liabilities distinct from those of its members.[1] There are many
different forms of corporations, most of which are used to conduct business.
Corporations exist as a product of corporate law, and their rules balance the interests of its
stakeholders: the management who operate the corporation; creditors who loan it goods, services
or money; shareholders who invest their capital; the employees who contribute their labor; and
the clients they serve. People work together in corporations to produce value and generate
income. In modern times, corporations have become an increasingly dominant part of economic
life. People rely on corporations for employment, pensions, goods, services, economic growth
and cultural development.

An important feature of corporation is limited liability. If a corporation fails, shareholders

normally only stand to lose their investment, and employees will lose their jobs, but neither will
be further liable for debts that remain owing to the corporation's creditors.

Despite not being natural persons, corporations are recognized by the law to have rights and
responsibilities like actual people. Corporations can exercise human rights against real
individuals and the state,[2] and they may be responsible for human rights violations.[3] Just as
they are "born" into existence through its members obtaining a certificate of incorporation, they
can "die" when they lose money into insolvency. Corporations can even be convicted of criminal
offences, such as fraud and manslaughter.[4]

Although corporate law varies in different jurisdictions, there are five core characteristics of the
business corporation:[5]

• Legal personality
• Limited liability
• Transferable shares
• Centralized management under a board structure
• Shared ownership by contributors of capital.

[edit] History
Main articles: History of corporations and List of oldest companies

1/8 share of the Stora Kopparberg mine, dated June 16, 1288.
The word "corporation" derives from corpus, the Latin word for body, or a "body of people".
Entities which carried on business and were the subjects of legal rights were found in ancient
Rome, and the Maurya Empire in ancient India.[6] In medieval Europe, churches became
incorporated, as did local governments, such as the Pope and the City of London Corporation.
The point was that the incorporation would survive longer than the lives of any particular
member, existing in perpetuity. The alleged oldest commercial corporation in the world, the
Stora Kopparberg mining community in Falun, Sweden, obtained a charter from King Magnus
Eriksson in 1347. Many European nations chartered corporations to lead colonial ventures, such
as the Dutch East India Company or the Hudson's Bay Company, and these corporations came to
play a large part in the history of corporate colonialism.

During the period of colonial expansion in the seventeenth century, the true progenitors of the
modern Corporation emerged as the "chartered company". Acting under a charter sanctioned by
the Dutch monarch, the Vereenigde Oost-Indische Compagnie (VOC), or the Dutch East India
Company, defeated Portuguese forces and established itself in the Moluccan Islands in order to
profit from the European demand for spices. Investors in the VOC were issued paper certificates
as proof of share ownership, and were able to trade their shares on the original Amsterdam stock
exchange. Shareholders are also explicitly granted limited liability in the company's royal
charter.[7] In the late eighteenth century, Stewart Kyd, the author of the first treatise on corporate
law in English, defined a corporation as,

a collection of many individuals united into one body, under a special denomination,
having perpetual succession under an artificial form, and vested, by policy of the
law, with the capacity of acting, in several respects, as an individual, particularly of
taking and granting property, of contracting obligations, and of suing and being
sued, of enjoying privileges and immunities in common, and of exercising a variety
of political rights, more or less extensive, according to the design of its institution,
or the powers conferred upon it, either at the time of its creation, or at any
subsequent period of its existence.

—[8]

[edit] Mercantilism

See also: Mercantilism and South Sea Bubble

A bond issued by the Dutch East India Company, dating from 1623, for the amount
of 2,400 florins

Labelled by both contemporaries and historians as "the grandest society of merchants in the
universe", the British East India Company would come to symbolize the dazzlingly rich potential
of the corporation, as well as new methods of business that could be both brutal and exploitive.[9]
On 31 December 1600, the English monarchy granted the company a fifteen-year monopoly on
trade to and from the East Indies and Africa. By 1611, shareholders in the East India Company
were earning an almost 150% return on their investment. Subsequent stock offerings
demonstrated just how lucrative the Company had become. Its first stock offering in 1613-1616
raised ₤418,000, and its first offering in 1617-1622 raised ₤1.6 million.[10]

In the United States, government chartering began to fall out of vogue in the mid-1800s.
Corporate law at the time was focused on protection of the public interest, and not on the
interests of corporate shareholders. Corporate charters were closely regulated by the states.
Forming a corporation usually required an act of legislature. Investors generally had to be given
an equal say in corporate governance, and corporations were required to comply with the
purposes expressed in their charters. Many private firms in the 19th century avoided the
corporate model for these reasons (Andrew Carnegie formed his steel operation as a limited
partnership, and John D. Rockefeller set up Standard Oil as a trust). Eventually, state
governments began to realize the greater corporate registration revenues available by providing
more permissive corporate laws. New Jersey was the first state to adopt an "enabling" corporate
law, with the goal of attracting more business to the state.[11] Delaware followed, and soon
became known as the most corporation-friendly state in the country after New Jersey raised taxes
on the corporations, driving them out. New Jersey reduced these taxes after this mistake was
realized, but by then it was too late; even today, most major public corporations are set up under
Delaware law.

By the beginning of the 19th century, government policy on both sides of the Atlantic began to
change, reflecting the growing popularity of the proposition that corporations were riding the
economic wave of the future. In 1819, the U.S. Supreme Court granted corporations a plethora of
rights they had not previously recognized or enjoyed.[12] Corporate charters were deemed
"inviolable", and not subject to arbitrary amendment or abolition by state governments.[13] The
Corporation as a whole was labeled an "artificial person," possessing both individuality and
immortality.[14]

At around the same time, British legislation was similarly freeing the corporation from the
shackles of historical restrictions. In 1844 the British Parliament passed the Joint Stock
Companies Act, which allowed companies to incorporate without a royal charter or an Act of
Parliament.[15] Ten years later, limited liability, the key provision of modern corporate law,
passed into English law: in response to increasing pressure from newly emerging capital
interests, Parliament passed the Limited Liability Act of 1855, which established the principle
that any corporation could enjoy limited legal liability on both contract and tort claims simply by
registering as a "limited" company with the appropriate government agency.[16]
This prompted the English periodical Economist to write in 1855 that "never, perhaps, was a
change so vehemently and generally demanded, of which the importance was so much
overrated."[17] The glaring inaccuracy of the second part of this judgment was recognized by the
same magazine more than 75 years later, when it claimed that, "[t]he economic historian of the
future . . . may be inclined to assign to the nameless inventor of the principle of limited liability,
as applied to trading corporations, a place of honour with Watt and Stephenson, and other
pioneers of the Industrial Revolution."[18]

[edit] Modern corporations

By the end of the 19th century the forces of limited liability, state and national deregulation, and
vastly increasing capital markets had come together to give birth to the corporation in its
modern-day form.[19] The well-known Santa Clara County v. Southern Pacific Railroad decision
began to influence policymaking and the modern corporate era had begun.

The 20th century saw a proliferation of enabling law across the world, which helped to drive
economic booms in many countries before and after World War I. Starting in the 1980s, many
countries with large state-owned corporations moved toward privatization, the selling of publicly
owned services and enterprises to corporations. Deregulation (reducing the regulation of
corporate activity) often accompanied privatization as part of a laissez-faire policy. Another
major postwar shift was toward the development of conglomerates, in which large corporations
purchased smaller corporations to expand their industrial base. Japanese firms developed a
horizontal conglomeration model, the keiretsu, which was later duplicated in other countries as
well.

[edit] Corporate law

Main article: Corporate law

The existence of a corporation requires a special legal framework and body of law that
specifically grants the corporation legal personality, and typically views a corporation as a
fictional person, a legal person, or a moral person (as opposed to a natural person). Corporate
statutes typically empower corporations to own property, sign binding contracts, and pay taxes in
a capacity separate from that of its shareholders (who are sometimes referred to as "members".
According to Lord Chancellor Haldane,

...a corporation is an abstraction. It has no mind of its own any more than it has a
body of its own; its active and directing will must consequently be sought in the
person of somebody who is really the directing mind and will of the corporation, the
very ego and centre of the personality of the corporation.

—[20]

The legal personality has two economic implications. First it grants creditors priority over the
corporate assets upon liquidation. Second, corporate assets cannot be withdrawn by its
shareholders, nor can the assets of the firm be taken by personal creditors of its shareholders. The
second feature requires special legislation and a special legal framework, as it cannot be
reproduced via standard contract law.[21]

The regulations most favorable to incorporation include:

Regulati
Description
on

Unlike a partnership or sole proprietorship, shareholders of a modern

business corporation have "limited" liability for the corporation's debts
and obligations.[22] As a result, their losses cannot exceed the amount
which they contributed to the corporation as dues or payment for shares.
This enables corporations to "socialize their costs" for the primary benefit
of shareholders; to socialize a cost is to spread it to society in general.[23]
The economic rationale for this is that it allows anonymous trading in the
shares of the corporation, by eliminating the corporation's creditors as a
stakeholder in such a transaction. Without limited liability, a creditor
Limited would probably not allow any share to be sold to a buyer at least as
liability creditworthy as the seller. Limited liability further allows corporations to
raise large amounts of finance for their enterprises by combining funds
from many owners of stock. Limited liability reduces the amount that a
shareholder can lose in a company. This increases the attraction to
potential shareholders, and thus increases both the number of willing
shareholders and the amount they are likely to invest. However, some
jurisdictions also permit another type of corporation, in which
shareholders' liability is unlimited, for example the unlimited liability
corporation in two provinces of Canada, and the unlimited company in the
United Kingdom.

Perpetual Another advantage is that the assets and structure of the corporation
lifetime may continue beyond the lifetimes of its shareholders and bondholders.
This allows stability and the accumulation of capital, which is thus
available for investment in larger and longer-lasting projects than if the
corporate assets were subject to dissolution and distribution. This was
also important in medieval times, 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.
(However a corporation can be dissolved by a government authority,
putting an end to its existence as a legal entity. But this usually only
happens if the company breaks the law, eg fails to meet annual filing
requirements, or in certain circumstances if the company requests
 dissolution.)

[edit] Ownership and control

Persons and other legal entities composed of persons (such as trusts and other corporations) can
have the right to vote or receive dividends once declared by the Board. In the case of for-profit
corporations, these voters hold shares of stock and are thus called shareholders or stockholders.
When no stockholders exist, a corporation may exist as a non-stock corporation (in the United
Kingdom, a "company limited by guarantee") and instead of having stockholders, the corporation
has members who have the right to vote on its operations. Voting members are not the only
members of a "Corporation". The members of a non-stock corporation are identified in the
Articles of Incorporation (UK equivalent: Articles of Association) and the titles of the member
classes may include "Trustee," "Active," "Associate," and/or "Honorary." However, each of
these listed in the Articles of Incorporation are members of the Corporation. The Articles of
Incorporation may define the "Corporation" by another name, such as "The ABC Club, Inc." and,
in which case, the "Corporation" and "The ABC Club, Inc." or just "The Club" are considered
synonymous and interchangeable as they may appear elsewhere in the Articles of Incorporation
or the By-Laws. If the non-stock corporation is not operated for profit, it is called 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 provided to ordinary unincorporated
businesses, to voluntary associations, or to groups of individuals.

There are two broad classes of corporate governance forms in the world. In most of the world,
control of the corporation is determined by a board of directors which is elected by the
shareholders. In some jurisdictions, such as Germany, the control of the corporation is divided
into two tiers with a supervisory board which elects a managing board. Germany is also unique
in having a system known as co-determination in which half of the supervisory board consists of
representatives of the employees. The CEO, president, treasurer, and other titled officers are
usually chosen by the board to manage the affairs of the corporation.

In addition to the limited influence of shareholders, corporations can be controlled (in part) by
creditors such as banks. In return for lending money to the corporation, creditors can demand a
controlling interest analogous to that of a member, including one or more seats on the board of
directors. In some jurisdictions, such as Germany and Japan, it is standard for banks to own
shares in corporations whereas in other jurisdictions such as the United States, under the Glass-
Steagall Act of 1933, and the United Kingdom, under the Bank of England, banks are prohibited
from owning shares in external corporations. However, since 1999 in the U. S., commercial
banks have been allowed to enter into investment banking through separate subsidiaries thanks to
the Financial Services Modernization Act or Gramm-Leach-Bliley Act. Since 1997, banks in the
U. K. are supervised by the Financial Services Authority; its rules are non-restrictive allowing
both foreign and domestic capital to operate all financial institutions, including insurance,
commercial and financial banking.[24]
Upon the Board's decision to dissolve a for-profit corporation, shareholders receive the leftovers,
following creditors and others with interests in the corporation. However shareholders receive
the benefit of limited liability, so they are liable only for the amount they contributed.

[edit] Formation

Historically, corporations were created by a charter granted by government. Today, corporations

are usually registered with the state, province, or national government and regulated by the laws
enacted by that government. Registration is the main prerequisite to the corporation's assumption
of limited liability. The law sometimes requires the corporation to designate its principal address,
as well as a registered agent (a person or company designated to receive legal service of
process). It may also be required to designate an agent or other legal representative of the
corporation.

Generally, a corporation files articles of incorporation with the government, laying out the
general nature of the corporation, the amount of stock it is authorized to issue, and the names and
addresses of directors. Once the articles are approved, the corporation's directors meet to create
bylaws that govern the internal functions of the corporation, such as meeting procedures and
officer positions.

The law of the jurisdiction in which a corporation operates will regulate most of its internal
activities, as well as its finances. If a corporation operates outside its home state, it is often
required to register with other governments as a foreign corporation, and is almost always
subject to laws of its host state pertaining to employment, crimes, contracts, civil actions, and the
like.

[edit] Naming

Corporations generally have a distinct name. Historically, some corporations were named after
their membership: for instance, "The President and Fellows of Harvard College." Nowadays,
corporations in most jurisdictions have a distinct name that does not need to make reference to
their membership. In Canada, this possibility is taken to its logical extreme: many smaller
Canadian corporations have no names at all, merely numbers based on their Provincial Sales Tax
registration number (e.g., "12345678 Ontario Limited").

In most countries, corporate names include the term "Corporation", or an abbreviation that
denotes the corporate status of the entity (e.g. "Incorporated" or "Inc." in the United States), or
the limited liability of its members (e.g. "Limited" or "Ltd."). These terms vary by jurisdiction
and language. In some jurisdictions they are mandatory, and in others they are not.[25] Their use
puts everybody on constructive notice that they are dealing with an entity whose liability is
limited, and does not reach back to the persons who own the entity: one can only collect from
whatever assets the entity still controls when one obtains a judgment against it.

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 (in United
States usage, but not generally in British usage), or even, archaically, to a group of not
necessarily related people (for example, those staying in a tavern).

[edit] Financial disclosure

In many jurisdictions, corporations whose shareholders benefit from limited liability are required
to publish annual financial statements and other data, so that creditors who do business with the
corporation are able to assess the creditworthiness of the corporation and cannot enforce claims
against shareholders.[26]. Shareholders therefore sacrifice some loss of privacy in return for
limited liability. This requirement generally applies in Europe, but not in the United States,
except for publicly traded corporations, where financial disclosure is required for investor
protection.

[edit] Unresolved issues

The nature of the corporation continues to evolve in response to new situations as existing
corporations promote new ideas and structures, the courts respond, and governments issue new
regulations. A question of long standing is that of diffused responsibility. For example, if a
corporation is found liable for a death, how should culpability and punishment for it be allocated
among shareholders, directors, management and staff, and the corporation itself? See corporate
liability, and specifically, corporate manslaughter.

The law differs among jurisdictions, and is in a state of flux. Some argue that shareholders
should be ultimately responsible in such circumstances, forcing them to consider issues other
than profit when investing, but a corporation may have millions of small shareholders who know
nothing about its business activities. Moreover, traders — especially hedge funds — may turn
over shares in corporations many times a day.[27] The issue of corporate repeat offenders (see H.
Glasbeak, "Wealth by Stealth: Corporate Crime, Corporate Law, and the Perversion of
Democracy" (Between the Lines Press: Toronto 2002) raises the question of the so-called "death
penalty for corporations."[28]

[edit] Types

For a list of types of corporation and other business types by country, see
Types of business entity.

Most corporations are registered with the local jurisdiction as either a stock corporation or a non-
stock corporation. Stock corporations sell stock to generate capital. A stock corporation is
generally a for-profit corporation. A non-stock corporation does not have stockholders, but may
have members who have voting rights in the corporation.

Some jurisdictions (Washington, D.C., for example) separate corporations into for-profit and
non-profit, as opposed to dividing into stock and non-stock.
Several states also allow a variation of the corporation for use by professionals (i.e., those
individuals typically considered as professionals who require a license from the state to conduct
business). In some states, such as Georgia, these corporations are known as "professional
corporations".

[edit] For-profit and non-profit

Main article: non-profit organization

In modern economic systems, conventions of corporate governance commonly appear 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.

[edit] Closely held corporations and publicly traded corporations

The institution most often referenced by the word "corporation" is a publicly-traded or publicly
traded corporation, the shares of which are traded on a public stock exchange (e.g., the New
York Stock Exchange or Nasdaq in the United States) where shares of stock of corporations are
bought and sold by and to the general public. Most of the largest businesses in the world are
publicly traded corporations. However, the majority of corporations are said to be closely held,
privately held or close corporations, meaning that no ready market exists for the trading of
shares. Many such corporations are owned and managed by a small group of businesspeople or
companies, although the size of such a corporation can be as vast as the largest public
corporations.

Closely held corporations do have some advantages over publicly traded corporations. A small,
closely held company can often make company-changing decisions much more rapidly than a
publicly traded company. A publicly traded company is also at the mercy of the market, having
capital flow in and out based not only on what the company is doing but the market and even
what the competitors are doing. Publicly traded companies also have advantages over their
closely held counterparts. Publicly traded companies often have more working capital and can
delegate debt throughout all shareholders. This means that people invested in a publicly traded
company will each take a much smaller hit to their own capital as opposed to those involved with
a closely held corporation. Publicly traded companies though suffer from this exact advantage. A
closely held corporation can often voluntarily take a hit to profit with little to no repercussions
(as long as it is not a sustained loss). A publicly traded company though often comes under
extreme scrutiny if profit and growth are not evident to stock holders, thus stock holders may
sell, further damaging the company. Often this blow is enough to make a small public company
fail.
Often communities benefit from a closely held company more so than from a public company. A
closely held company is far more likely to stay in a single place that has treated them well, even
if going through hard times. The shareholders can incur some of the damage the company may
receive from a bad year or slow period in the company profits. Closely held companies often
have a better relationship with workers. In larger, publicly traded companies, often when a year
has gone badly the first area to feel the effects are the work force with lay offs or worker hours,
wages or benefits being cut. Again, in a closely held business the shareholders can incur this
profit damage rather than passing it to the workers. Closely held businesses are also often known
to be more socially responsible than publicly traded companies.[citation needed]

The affairs of publicly traded and closely held corporations are similar in many respects. The
main difference in most countries is that publicly traded corporations have the burden of
complying with additional securities laws, which (especially in the U.S.) may require additional
periodic disclosure (with more stringent requirements), stricter corporate governance standards,
and additional procedural obligations in connection with major corporate transactions (e.g.
mergers) or events (e.g. elections of directors).

A closely held corporation may be a subsidiary of another corporation (its parent company),
which may itself be either a closely held or a public corporation.

[edit] Mutual benefit corporations

A mutual benefit nonprofit corporation is a corporation formed in the United States solely for the
benefit of its members. An example of a mutual benefit nonprofit corporation is a golf club.
Individuals pay to join the club, memberships may be bought and sold, and any property owned
by the club is distributed to its members if the club dissolves. The club can decide, in its
corporate bylaws, how many members to have, and who can be a member. Generally, while it is
a nonprofit corporation, a mutual benefit corporation is not a charity. Because it is not a charity,
a mutual benefit nonprofit corporation cannot obtain 501(c)(3) status. If there is a dispute as to
how a mutual benefit nonprofit corporation is being operated, it is up to the members to resolve
the dispute since the corporation exists to solely serve the needs of its membership and not the
general public.[29]

[edit] Corporations globally

Main article: Multinational corporation

Following on the success of the corporate model at a national level, many corporations have
become transnational or multinational corporations: growing beyond national boundaries to
attain sometimes remarkable positions of power and influence in the process of globalizing.

The typical "transnational" or "multinational" may fit into a web of overlapping shareholders and
directorships, with multiple branches and lines in different regions, many such sub-groupings
comprising corporations in their own right. Growth by expansion may favor national or regional
branches; growth by acquisition or merger can result in a plethora of groupings scattered around
and/or spanning the globe, with structures and names which do not always make clear the
structures of shareholder ownership and interaction.

In the spread of corporations across multiple continents, the importance of corporate culture has
grown as a unifying factor and a counterweight to local national sensibilities and cultural
awareness.

[edit] Australia

Main article: Corporations Act 2001

In Australia corporations are registered and regulated by the Commonwealth Government

through the Australian Securities and Investments Commission. Corporations law has been
largely codified in the Corporations Act 2001.

[edit] Brazil

In Brazil there are many different types of corporations ("sociedades"), but the two most
common ones commercially speaking are: (i) "sociedade limitada", identified by "Ltda." after the
company's name, equivalent to the British limited company, and (ii) "sociedade anônima" or
"companhia", identified by "SA" or "Companhia" in the company's name, equivalent to the
British public limited company. The "Ltda." is mainly governed by the new Civil Code, enacted
in 2002, and the "SA" by the Law 6.404 dated 15 December 1976.

[edit] Canada

Main article: Canadian corporation

In Canada both the federal government and the provinces 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. The oldest
corporation in Canada is the Hudson's Bay Company; though its business has always been based
in Canada, its Royal Charter was issued in England by King Charles II in 1670, and became a
Canadian charter by amendment in 1970 when it moved its corporate headquarters from London
to Canada. Federally recognized corporations are regulated by the Canada Business Corporations
Act.

[edit] German-speaking countries

Main article: Aktiengesellschaft

Germany, Austria, Switzerland and Liechtenstein recognize two forms of corporation: the
Aktiengesellschaft (AG), analogous to public corporations in the English-speaking world, and
the Gesellschaft mit beschränkter Haftung (GmbH), similar to (and an inspiration for) the
modern limited liability company.
[edit] Italy

The Italian Republic recognizes three types of company with limited liability: "S.r.l", or "Società
a responsabilità limitata" (a private limited company), "S.p.A" or "Società per Azioni" (a joint-
stock company, similar to a Public Limited Company in the United Kingdom), and "S.a.p.a"
("Società in Accomandita per Azioni"). The latter is a hybrid form that involves two categories
of shareholders, some with and some without limited liability, and is rarely used in practice.

[edit] Japan

In Japan, both the state and local public entities under the Local Autonomy Law (prefectures and
municipalities) are considered to be corporations (法人 hōjin?). Non-profit corporations may be
established under the Civil Code.

The term "company" (会社 kaisha?) is used to refer to business corporations. The predominant
form is the kabushiki kaisha (株式会社), used by public corporations as well as smaller
enterprises. Mochibun kaisha (持分会社), a form for smaller enterprises, are becoming
increasingly common. Between 2002 and 2008, the intermediary corporation (中間法人 chūkan
hōjin?) existed to bridge the gap between for-profit companies and non-governmental and non-
profit organizations.

[edit] United Kingdom

Main article: UK company law

In the United Kingdom, 'corporation' most commonly refers to a body corporate formed by
Royal Charter or by statute, of which few now remain. The BBC is the oldest and best known
corporation within the UK that is still in existence. Others, such as the British Steel Corporation,
were privatized in the 1980s.

In the private sector, corporations are referred to in law as companies, and are regulated by the
Companies Act 2006 (or the Northern Ireland equivalent). The most common type of company is
the private limited company ("Limited" or "Ltd."). Private limited companies can either be
limited by shares or by guarantee. Other corporate forms include the public limited company
("PLC") and the unlimited company.

In the United Kingdom, 'corporation' can also refer to a corporation sole, which is an office held
by an individual natural person, and has a legal entity separate from that person.

[edit] United States

See also: Delaware corporation

In the context of debt collection, the United States is itself legally defined as a "Federal
corporation".[30] Furthermore, several types of conventional corporations exist in the United
States. Generically, any business entity that is recognized as distinct from the people who own it
(i.e., is not a sole proprietorship or a partnership) is a corporation. This generic label includes
entities that are known by such legal labels as ‘association’, ‘organization’ and ‘limited liability
company’, as well as corporations proper. Only a company that has been formally incorporated
according to the laws of a particular state is called ‘corporation’. American corporations can be
either profit-making companies or non-profit entities. Tax-exempt non-profit corporations are
often called “501(c)3 corporation”, after the section of the Internal Revenue Code that addresses
their tax exemption.

Corporations are created by filing the requisite documents with a particular state government.
The process is called “incorporation,” referring to the abstract concept of clothing the entity with
a "veil" of artificial personhood (embodying, or “corporating” it, ‘corpus’ being the Latin word
for ‘body’). Only certain corporations, including banks, are chartered. Others simply file their
articles of incorporation with the state government as part of a registration process.

The federal government can only create corporate entities pursuant to relevant powers in the U.S.
Constitution. For example, Congress has constitutional power to regulate banking, so it has
power to charter federal banks.

Once incorporated, the corporation has artificial personhood everywhere it may operate, until
such time as the corporation may be dissolved. A corporation that operates in one state while
being incorporated in another is a “foreign corporation.” This label also applies to corporations
incorporated outside of the United States. Foreign corporations must usually register with the
secretary of state’s office in each state to lawfully conduct business in that state.

A corporation is legally a citizen of the state (or other jurisdiction) in which it is incorporated
(except when circumstances direct the corporation be classified as a citizen of the state in which
it has its head office, or the state in which it does the majority of its business). Corporate
business law differs from state to state, and many prospective corporations choose to incorporate
in a state whose laws are most favorable to its business interests. Many large corporations are
incorporated in Delaware, for example, without being physically located there because that state
has very favorable corporate tax and disclosure laws.

Companies set up for privacy or asset protection often incorporate in Nevada, which does not
require disclosure of share ownership. Many states, particularly smaller ones, have modeled their
corporate statutes after the Model Business Corporation Act, one of many model sets of law
prepared and published by the American Bar Association.

As juristic persons, corporations have certain rights that attach to natural purposes. The vast
majority of them attach to corporations under state law, especially the law of the state in which
the company is incorporated – since the corporations very existence is predicated on the laws of
that state. A few rights also attach by federal constitutional and statutory law, but they are few
and far between compared to the rights of natural persons. For example, a corporation has the
personal right to bring a lawsuit (as well as the capacity to be sued) and, like a natural person, a
corporation can be libeled.
But a corporation has no constitutional right to freely exercise its religion because religious
exercise is something that only "natural" persons can do. That is, only human beings, not
business entities, have the necessary faculties of belief and spirituality that enable them to
possess and exercise religious beliefs.

Harvard College (a component of Harvard University), formally the President and Fellows of
Harvard College (also known as the Harvard Corporation), is the oldest corporation in the
western hemisphere. Founded in 1636, the second of Harvard’s two governing boards was
incorporated by the Great and General Court of Massachusetts in 1650. Significantly,
Massachusetts itself was a corporate colony at that time – owned and operated by the
Massachusetts Bay Company (until it lost its charter in 1684) - so Harvard College is a
corporation created by a corporation.

Many nations have modeled their own corporate laws on American business law. Corporate law
in Saudi Arabia, for example, follows the model of New York State corporate law. In addition to
typical corporations in the United States, the federal government, in 1971 passed the Alaska
Native Claims Settlement Act (ANCSA), which authorized the creation of 12 regional native
corporations for Alaska Natives and over 200 village corporations that were entitled to a
settlement of land and cash. In addition to the 12 regional corporations, the legislation permitted
a thirteenth regional corporation without a land settlement for those Alaska Natives living out of
the State of Alaska at the time of passage of ANCSA.

[edit] Corporate taxation

Main article: Corporate tax

In many countries corporate profits are taxed at a corporate tax rate, and dividends paid to
shareholders are taxed at a separate rate. Such a system is sometimes referred to as "double
taxation", because any profits distributed to shareholders will eventually be taxed twice. One
solution to this (as in the case of the Australian and UK tax systems) is for the recipient of the
dividend to be entitled to a tax credit which addresses the fact that the profits represented by the
dividend have already been taxed. The company profit being passed on is therefore effectively
only taxed at the rate of tax paid by the eventual recipient of the dividend. In other systems,
dividends are taxed at a lower rate than other income (e.g. in the US) or shareholders are taxed
directly on the corporation's profits and dividends are not taxed (e.g. S corporations in the US).

[edit] Criticisms
Main article: Criticisms of Corporations

As Adam Smith pointed out in the Wealth of Nations, when ownership is separated from
management (i.e. the actual production process required to obtain the capital), the latter will
inevitably begin to neglect the interests of the former, creating dysfunction within the company.
[31]
Some maintain that recent events in corporate America may serve to reinforce Smith's
warnings about the dangers of legally-protected collectivist hierarchies.[32]
Data From Legal Dictionary

corporation n. an organization formed with state governmental approval to act as an artificial person to
carry on business (or other activities), which can sue or be sued, and (unless it is non-profit) can issue
shares of stock to raise funds with which to start a business or increase its capital. One benefit is that a
corporation's liability for damages or debts is limited to its assets, so the shareholders and officers are
protected from personal claims, unless they commit fraud. For private business corporations the Articles
of Incorporation filed with the Secretary of State of the incorporating state must include certain
information, including the name of the responsible party or parties (incorporators and agent for
acceptance of service), the amount of stock it will be authorized to issue, and its purpose. In some states
the purpose may be a general statement of any purpose allowed by law, while others require greater
specificity. Corporation shareholders elect a board of directors, which in turn adopts bylaws, chooses the
officers and hires top management (which in smaller corporations are often the directors and/or
shareholders). Annual meetings are required of both the shareholders and the Board, and major policy
decisions must be made by resolution of the Board (which often delegates much authority to officers and
committees). Issuance of stock of less than $300,000, with no public solicitation and relatively few
shareholders, is either automatically approved by the state commissioner of corporations or requires a
petition outlining the financing. Some states are considered lax in supervision, have low filing fees and
corporate taxes and are popular incorporation states, but corporations must register with Secretary of
States of other states where they do substantial business as a "foreign" corporation. Larger stock
offerings and/or those offered to the general public require approval by the Securities and Exchange
Commission after close scrutiny and approval of a public "prospectus" which details the entire operation
of the corporation. There are also non-profit (or not for profit) corporations organized for religious,
educational, charitable or public service purposes. Public corporations are those formed by a municipal,
state or federal government for public purposes such as operating a dam and utility project. A close
corporation is made up of a handful of shareholders with a working or familial connection which is
permitted to operate informally without resolutions and regular Board meetings. A de jure corporation is
one that is formally operated under the law, while a de facto corporation is one which operates as if it
were legal, but without the Articles of Incorporation being valid. Corporations can range from the Corner
Mini-Mart to General Electric. (See: articles of incorporation, bylaws, board of directors, close corporation,
public corporation, de jure corporation, de facto corporation, shareholder, stock, securities)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.

corporation noun affiliate, affiliation, agglomerate, alliance, artificial entity, artificial person, associate,
association, body, body corporate, business, business association, busiiess establishment, coalition,
combination, combine, commercial enterprise, company, concern, confederacy, consociation,
consolidation, corporate body, enterprise, establishment, federation, firm, foundation, holding company,
industry, institute, institution, joint connern, legal body, legal entity, operating company, sodality, stock
company, syndicate, union
Associated concepts: alter ego, business trust, cartel, closed corporation, closely held corporation,
consolidation, corpooate charter, corporate officers dissolution, corporate struccure, de facto corporation,
de jure corporation, derivative accion, directors, dissolution, domestic corporation, fictitious corporations,
foreign corporation, joint stock associations, limited partnerships, membership corporation, merger,
muuicipal corporation, officers, parent corporation, public corroration, partnership, proxies, self-dealing,
sole proprietorship, voting trusts
Foreign phrases: Jus quo universitates utuntur est idem quod habent privati.The law which governs
corporations is the same as that which governs individuals. Corporatio non dicitur aliquid facere nisi id sit
collegialiter deliberrri, etiamsi major pars id faciat. A corporation is not said to do anything unless it be
deliberated upon collectively, allhough the majority should do it.
See also: affiliation, alliance, association, business, company, concern, enterprise, league, trust
Burton's Legal Thesaurus, 4E. Copyright © 2007 by William C. Burton. Used with permission of The McGraw-Hill Companies, Inc.
CORPORATION. An aggregate corporation is an ideal body, created by law, composed of individuals
united under a common name, the members of which succeed each other, so that the body continues the
same, notwithstanding the changes of the individuals who compose it, and which for certain purposes is
considered as a natural person. Browne's Civ. Law, 99; Civ. Code of Lo. art. 418; 2 Kent's Com. 215. Mr.
Kyd, (Corpor. vol. 1, p. 13,) defines a corporation as follows: "A corporation, or body politic, or body
incorporate, is a collection of many; individuals united in one body, under a special denomination, having
perpetual succession under an artificial form, and vested by the policy of the law, with a capacity of acting
in several respects as an individual, particularly of taking and granting property, contracting obligations,
and of suing and being sued; of enjoying privileges and immunities in common, and of exercising a variety
of political rights, more or less extensive, according to the design of its institution, or the powers conferred
upon it, either at the time of its creation, or at any subsequent period of its existence." In the case of
Dartmouth College against Woodward, 4 Wheat. Rep. 626, Chief Justice Marshall describes a corporation
to be "an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere
creature of law," continues the judge, "it possesses only those properties which the charter of its creation
confers upon it, either expressly or as incidental to its very existence. These are such as are supposed
best calculated to effect the object for which it was created. Among the most important are immortality,
and if the expression may be allowed, individuality properties by which a perpetual succession of many
persons are considered, as the same, and may act as the single individual, They enable a corporation to
manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless
necessity of perpetual conveyance for the purpose of transmitting it from hand to hand. It is chiefly for the
purpose of clothing bodies of men, in succession, with these qualities and capacities, that corporations
were invented, and are in use." See 2 Bl. Corn. 37.
2. The words corporation and incorporation are frequently confounded, particularly in the old books.
The distinction between them is, however, obvious; the one is the institution itself, the other the act by
which the institution is created.
3. Corporations are divided into public and private.
4. Public corporations, which are also called political, and sometimes municipal corporations, are those
which have for their object the government of a portion of the state; Civil Code of Lo. art. 420 and
although in such case it involves some private interests, yet, as it is endowed with a portion of political
power, the term public has been deemed appropriate.
5. Another class of public corporations are those which are founded for public, though not for political
or municipal purposes, and the, whole interest in which belongs to the government. The Bank of
Philadelphia, for example, if the whole stock belonged exclusively to the government, would be a public
corporation; but inasmuch as there are other owners of the stock, it is a private corporation. Domat's Civil
Law, 452 4 Wheat. R. 668; 9 Wheat. R. 907 8 M'Cord's R. 377 1 Hawk's R. 36; 2 Kent's Corn. 222.
6. Nations or states, are denominated by publicists, bodies politic, and are said to have their affairs
and interests, and to deliberate and resolve, in common. They thus become as moral persons, having an
understanding and will peculiar to themselves, and are susceptible of obligations and laws. Vattel, 49. In
this extensive sense the United States may be termed a corporation; and so may each state singly. Per
Iredell, J. 3 Dall. 447.
7. Private corporations. In the popular meaning of the term, nearly every corporation is public,
inasmuch as they are created for the public benefit; but if the whole interest does not belong to the
government, or if the corporation is not created for the administration of political or municipal power, the
corporation is private. A bank, for instance, may be created by the government for its own uses; but if the
stock is owned by private persons, it is a private corporation, although it is created by the government,
and its operations partake of a private nature. 9 Wheat. R. 907. The rule is the same in the case of canal,
bridge, turnpike, insurance companies, and the like. Charitable or literary corporations, founded by private
benefaction, are in point of law private corporations, though dedicated to public charity, or for the general
promotion of learning. Ang. & Ames on Corp. 22.
8. Private corporations are divided into ecclesiastical and lay.
9. Ecclesiastical corporations, in the United States, are commonly called religious corporations they
are created to enable religious societies to manage with more facility and advantage, the temporalities
belonging to the church or congregation.
10. Lay corporations are divided into civil and eleemosynary. Civil corporations are created for an
infinite variety of temporal purposes, such as affording facilities for obtaining loans of money; the making
of canals, turnpike roads, and the like. And also such as are established for the advancement of learning.
1 Bl. Com. 471.
11. Eleemosynary corporations are such as are instituted upon a principle of charity, their object being
the perpetual distribution of the bounty of the founder of them, to such persons as he has directed. Of this
kind are hospitals for the relief of the impotent, indigent and sick, or deaf and dumb. 1 Kyd on Corp. 26; 4
Conn. R. 272; Angell & A. on Corp. 26.
12. Corporations, considered in another point of view, are either sole or aggregate.
13. A sole corporation, as its name implies, consists of only one person, to whom and his successors
belongs that legal perpetuity, the enjoyment of which is denied to all natural persons. 1 Black Com. 469.
Those corporations are not common in the United States. In those states, however, where the religious
establishment of the church of England was adopted, when they were colonies, together with the common
law on that subject, the minister of the parish was seised of the freehold, as persona ecclesiae, in the
same manner as in England; and the right of his successors to the freehold being thus established was
not destroyed by the abolition of the regal government, nor can it be divested even by an act of the state
legislature. 9 Cranch, 828.
14. A sole corporation cannot take personal property in succession; its corporate capacity of taking
property is confined altogether to real estate. 9 Cranch, 43.
15. An aggregate corporation consists of several persons, who are' united in one society, which is
continued by a succession of members. Of this kind are the mayor or commonalty of a city; the heads and
fellows of a college; the members of trading companies, and the like. 1 Kyd on Corp. 76; 2 Kent's Com.
221 Ang. & A. on Corp. 20. See, generally, Bouv. Inst. Index, h.t.

Obligation
The act of obligating.
That which obligates or constrains; the binding power of a promise, contract, oath, or vow,
or of law; that which constitutes legal or moral duty.
Any act by which a person becomes bound to do something to or for anouther, or to forbear
something; external duties imposed by law, promise, or contract, by the relations of society,
or by courtesy, kindness, etc.
The state of being obligated or bound; the state of being indebted for an act of favor or
kindness; as, to place others under obligations to one.
A bond with a condition annexed, and a penalty for nonfulfillment. In a larger sense, it is an
acknowledgment of a duty to pay a certain sum or do a certain things.

ob·li·ga·tion ( b l -g sh n)
n.
1. The act of binding oneself by a social, legal, or moral tie.
2.
a. A social, legal, or moral requirement, such as a duty, contract, or promise that compels one to follow or
avoid a particular course of action.
b. A course of action imposed by society, law, or conscience by which one is bound or restricted.
3. The constraining power of a promise, contract, law, or sense of duty.
4. Law
a. A legal agreement stipulating a specified payment or action, especially if the agreement also specifies a
penalty for failure to comply.
b. The document containing the terms of such an agreement.
5.
a. Something owed as payment or in return for a special service or favor.
b. The service or favor for which one is indebted to another.
6. The state, fact, or feeling of being indebted to another for a special service or favor received.

ob li·ga tion·al adj.

The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company.
Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.

obligation [ˌɒblɪˈgeɪʃən]
n
1. a moral or legal requirement; duty
2. the act of obligating or the state of being obligated
3. (Law) Law a legally enforceable agreement to perform some act, esp to pay money, for the benefit of
another party
4. (Law) Law
a. a written contract containing a penalty
b. an instrument acknowledging indebtedness to secure the repayment of money borrowed
5. a person or thing to which one is bound morally or legally
6. something owed in return for a service or favour
7. a service or favour for which one is indebted
obligational adj

Collins English Dictionary – Complete and Unabridged 6th Edition 2003. © William Collins Sons & Co. Ltd 1979, 1986 ©
HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

ThesaurusLegend: Synonyms Related Words Antonyms

Noun 1. obligation - the social force that binds you to the courses of action
demanded by that force; "we must instill a sense of duty in our children";
"every right implies a responsibility; every opportunity, an obligation; every
possession, a duty"- John D.Rockefeller Jr
duty, responsibility
job - the responsibility to do something; "it is their job to print the truth"
safekeeping, guardianship, keeping - the responsibility of a guardian or keeper; "he left his car in
my keeping"
social control - control exerted (actively or passively) by group action
moral obligation - an obligation arising out of considerations of right and wrong; "he did it out of a
feeling of moral obligation"
noblesse oblige - the obligation of those of high rank to be honorable and generous (often used
ironically)
burden of proof - the duty of proving a disputed charge
civic duty, civic responsibility - the responsibilities of a citizen
filial duty - duty of a child to its parents
imperative - some duty that is essential and urgent
incumbency - a duty that is incumbent upon you
legal duty - acts which the law requires be done or forborne
line of duty - all that is normally required in some area of responsibility
white man's burden - the supposed responsibility of the white race to provide care for their non-
 white subjects
prerequisite, requirement - something that is required in advance; "Latin was a prerequisite for
admission"
requirement, demand - required activity; "the requirements of his work affected his health"; "there
were many demands on his time"
2. obligation - the state of being obligated to do or pay something; "he is under an obligation to
finish the job"
state - the way something is with respect to its main attributes; "the current state of knowledge";
"his state of health"; "in a weak financial state"
financial obligation, indebtedness, liability - an obligation to pay money to another party
3. obligation - a personal relation in which one is indebted for a service or favor
indebtedness
personal relation, personal relationship - a relation between persons
4. obligation - a written promise to repay a debt
certificate of indebtedness, debt instrument
cash equivalent - a highly liquid debt instrument with maturities of less than three months
certificate of deposit, CD - a debt instrument issued by a bank; usually pays interest
note of hand, promissory note, note - a promise to pay a specified amount on demand or at a
certain time; "I had to co-sign his note at the bank"
document - a written account of ownership or obligation
floater - a debt instrument with a variable interest rate tied to some other interest rate (e.g. the
rate paid by T-bills)
bond certificate, bond - a certificate of debt (usually interest-bearing or discounted) that is issued
by a government or corporation in order to raise money; the issuer is required to pay a fixed sum
annually until maturity and then a fixed sum to repay the principal
5. obligation - a legal agreement specifying a payment or action and the penalty for failure to
comply
written agreement - a legal document summarizing the agreement between parties
debt - an obligation to pay or do something

li·a·bil·i·ty (l -b l -t )
n. pl. li·a·bil·i·ties
1. The state of being liable.
2.
a. Something for which one is liable; an obligation,
responsibility, or debt.
b. liabilities The financial obligations entered in the
balance sheet of a business enterprise.
3. Something that holds one back; a handicap.
4. Likelihood.

The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company.
Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.

liability [ˌlaɪəˈbɪlɪtɪ]
n pl -ties
1. the state of being liable
2. (Economics, Accounting & Finance / Banking & Finance) a financial obligation
3. a hindrance or disadvantage
4. likelihood or probability