The terms business, company and corporation are often used interchangeably by the general public. However, there are some significant differences and definite benefits.
Most Important Benefit
Corporations enjoy a variety of benefits and perks. The greatest benefit of all is limited liability. It means that stockholders can reap the benefits of profits through dividends and stocks, but they can’t be held personally liable for the company’s debts or a product problem. The only real risk to stockholders is losing the money they invested in the corporation.
What it Is
A corporation is a legal entity that’s often referred to as a “legal person.” It’s completely distinct and separate from the founders or owners. The Supreme Court ruled in 1886 that corporations were entitled to many of the same rights and responsibilities as an individual under the Fourteenth Amendment. Corporations can:
- Pay taxes
- Sue and be sued
- Own assets
- Enter into contracts
- Loan and borrow money
- Hire employees
Anyone Can Form One
Individuals or a group of people with a shared goal can form a corporation. To be recognized as a legal entity, it must be incorporated. Most corporations are for the purpose of making a profit, but there are also profit and non-profit organizations, along with charities that operate as legal corporations.
A corporation can conduct business under its own name, but it can also conduct business under a completely different name or have subsidiaries with other names that are owned by the parent company.
The Definition Varies
Corporations are created under the laws of the state in which they’re formed, but the exact definition of a corporation can vary among jurisdictions. The founders must file articles of incorporation and issue stock. Stockholders must also elect a board of directors during an annual meeting. The Securities and Exchange Commission (SEC) and federal law regulate public corporations.