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Friday, September 14, 2007



A corporation is a legal entity (technically, a juristic person) which has a
separate legal personality from its members.

The defining legal rights and obligations of the corporation are: (i) the
ability to sue and be sued; (ii) the ability to hold assets in its own name;
(iii) the ability to hire agents; (iv) the ability to sign contracts; and (v)
the ability to make by-laws, which govern its internal affairs. Other legal
rights and obligations may be assigned to the corporation by governments or
courts. These are often controversial.

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."

Currently, the modern business corporation is the dominant type of corporation.
In addition to its legal personality, the modern business corporation has at
least three other legal characteristics: (i) transferable shares (shareholders
can change without affecting its status as a legal entity), (ii) perpetual
succession capacity (its possible continued existence despite shareholders'
death or withdrawal), (iii) and limited liability (including, but not limited
to: the shareholders' limited responsibility for corporate debt, insulation from
judgments against the corporation, shareholders' amnesty from criminal actions
of the corporation, and, in some jurisdictions, limited liability for corporate
officers and directors from criminal acts by the corporation}.

The modern business corporation's prevalence often obscures the fact that for
years other corporate business entities existed, before the emergence of the
modern business corporation. Investors and entrepreneurs often form joint stock
companies and then incorporated them to facilitate conducting business; as this
business entity now is prevalent, the term corporation often is used to
specifically refer to such business corporations. Corporations may also be
formed for local government (municipal corporation), political, religious, and
charitable purposes (not-for-profit corporation), or for government programs
(government-owned corporation). As a generic legal term, 'corporation' means any
group of persons with a legal personality. Historically, the modern business
corporation emerged from the blending of the traditional corporation with the
joint-stock company.

Ownership and control

Humans and other legal entities composed of humans (such as trusts and other
corporations) can have the right to vote or share in the profit of corporations.
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, and instead of having
stockholders, the corporation has members who have the right to vote on its
operations. 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.

For the purposes of the next few paragraphs, the term "members" will be used to
refer to stockholders of a stock corporation and members of a non-stock

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 technically elected by the shareholders. In practice, with the
exception of takeovers, the board members are determined by the previous board.
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 codetermination 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 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 and the
United Kingdom banks are prohibited from owning shares in external corporation.

Members of a corporation (except for non-profit corporations) are said to have a
"residual interest." Should the corporation end its existence, the members are
the last to receive its assets, following creditors and others with interests in
the corporation. This can make investment in a corporation risky; however, a
diverse investment portfolio minimizes this risk. In addition, shareholders
receive the benefit of limited liability regulations, making shareholders liable
for only the amount they contributed. This only applies in the case of
for-profit corporations; non-profits are not allowed to have residual benefits
available to the members.


Historically, corporations were created by special charter of governments.
Today, corporations are usually registered with the state, province, or national
government and become regulated by the laws enacted by that government.
Registration is the main prerequisite to the corporation's assumption of limited
liability. As part of this registration, it must in many cases be required to
designate the principal address of the corporation as well as a registered agent
(a person or company that is designated to receive legal service of process). As
part of the registration, it may also be required to designate an agent or other
legal representative of the corporation depending on the filing jurisdiction.

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

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.


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., " Ontario Limited").

In most countries, corporate names include the term "Corporation", or an
abbreviation that denotes the corporate status of the entity. Of course, these
terms vary by jurisdiction and language. In some jurisdictions they are
mandatory, and in others they are not.[4] Their use puts all persons on
constructive notice that they have to deal with an entity whose liability
remains limited, in the sense that it does not reach back to the persons who
constitute the entity; one can only collect from whatever assets the entity
still controls at the time 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, or even, archaically, to a group of not necessarily related
people (for example, those staying in a tavern).

Unresolved issues

The nature of the corporation continues to evolve through existing corporations
pushing new ideas and structures, courts responding, and governments regulating
in response to new situations. A question of long standing is that of diffused
responsibility: for example, if the corporation is found liable for a death,
then how should the blame and punishment for this be allocated across the
shareholders, directors, management and staff of the corporation, and the
corporation itself? See corporate manslaughter specifically, and corporate
liability generally.

The present law differs among jurisdictions, and is in a state of flux. Some
argue that the shareholders should be ultimately responsible for such
circumstances, forcing them to consider issues other than profit when investing,
but the modern corporation may have many millions of small shareholders who know
nothing about its business activities. In addition, traders — especially hedge
funds — may rapidly turn over their shares in corporation many times a day.


The word "corporation" derives from the Latin Corpus (body), representing a
"body of people"; that is, a group of people authorized to act as an individual
(Oxford English Dictionary). The word universitas also used to refer to a group
of people but now refers specifically to a group of scholars (see University).
In England the term corporation was also used for the local government body in
charge of a borough. This style was replaced in most cases with the term council
in Britain in 1973, and in the Republic of Ireland in 2001. The sole exception
is the Corporation of London which retains the title.A bond issued by the Dutch East India Company, dating from 1623, for the amount of 2,400 florins

Types of corporationsFor-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

Closely held and public

The institution most often referenced by the word "corporation" is a public or
publicly traded corporation, the shares of which are traded on a public market
(e.g., the New York Stock Exchange or Nasdaq) designed specifically for the
buying and selling of shares of stock of corporations 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 have a few 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 up too. 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 small 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.
Oftentimes this blow is enough to make a small public company fail.

Oftentimes 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. Workers benefit in that 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.

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).

Mutual Benefit Corporations
A mutual benefit nonprofit corporation is formed 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.[6]

Multinational corporations
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.

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.


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.

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, chartered in 1670. Federally recognized corporations are
regulated by the Canada Business Corporations Act.

German-speaking countries

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


Italy recognises two forms of companies with limited liability: "S.r.l", or "Società
a Responsabilità Limitata" (similar to Limited liability company) and "S.p.A" or
"Società Per Azioni" (similar to American stock corporation).

United Kingdom

In the United Kingdom, 'corporation' most commonly refers to a publicly-owned
company, of which few now remain. The BBC is the oldest and best known
corporation still in existence. Others, such as the British Steel Corporation,
were privatized in the 1980s.

In the private sector, the most common type of company in the UK 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.

United States

Several types of 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
IRS Code that addresses their tax exemption.

Corporations are created by filing the requisite documents with a particular
state government. The process is called “incorporation” and refers to the
abstract concept of clothing the business entity with a veil of artificial
person hood (of “corporating” it – ‘corpuus’ being the Latin for “body”). Only
certain corporations, such as banks, are chartered. The rest merely file their
articles of incorporation with the state government as part of a registration

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. Additionally,
Congress has power to create and own corporations that serve a purpose of the
federal government, such as Amtrak and the U.S. Postal Service.

Once incorporated, the corporation has artificial person hood 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 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
actually being 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

Harvard College (a component of Harvard University), formally the President and
Fellows of Harvard College (AKA 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 was a corporation created by a

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.

Corporate taxation

In many countries, including the United States and United Kingdom, 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 Australia 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

Pre-modern corporations

Corporations have been present in some forms as far back as ancient India and
ancient Rome. Although devoid of some of the core characteristics by which
corporations are known today, they nonetheless were enterprises with a form of
shareholders who invested money for a specific purpose. Such corporations in the
Roman Empire were sanctioned by the state, while such corporations in the Maurya
Empire were mostly private commercial entities.

With the collapse of the Roman Empire, the Roman conception of the corporation
merged with other views. Germanic tribes, for example, maintained that a group
entity in and of itself could have a separate identity from that of its members.

These influences came together in the body of canon law built around the
conception of the church as corporate structure in the Middle Ages. Different
theories of the church as corporate body were favored by different individuals
but all agreed on one key component: that the church was more than just its
members and could maintain an existence perpetually, regardless of the death of
any individual member.

This, together with discussion as to the relationship between the head of a
corporation (such as the Pope) and its members, contributed not only to the
development of modern corporations and corporate theory but also set the stage
for many ideas that would come to fruition during the enlightenment. 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 law classifies a corporation either as a corporation sole (one person) or as
a corporation aggregate (any other number).

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