… means incor­po­rat­ing your small business

A cor­po­ra­tion is a legal entity sep­a­rate from the per­sons who own it or the per­sons who man­age or oper­ate it. In British tra­di­tion it is the term des­ig­nat­ing a body cor­po­rate, where it can be either a cor­po­ra­tion sole (an office held by an indi­vid­ual nat­ural per­son, which is a legal entity sep­a­rate from that per­son) or a cor­po­ra­tion aggre­gate (involv­ing more per­sons). In Amer­i­can and, increas­ingly, inter­na­tional usage, the term denotes a body cor­po­rate formed to con­duct busi­ness, and this mean­ing of cor­po­ra­tion is dis­cussed in the remain­ing part of this entry (the lim­ited com­pany in British usage).

Cor­po­ra­tions exist as a prod­uct of cor­po­rate law, and their rules bal­ance the inter­ests of the man­age­ment who oper­ate the cor­po­ra­tion; cred­i­tors who loan it goods, ser­vices or money; share­hold­ers that 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, for their goods and ser­vices, for the value of the pen­sions, for eco­nomic growth and social development.

The defin­ing fea­ture of a cor­po­ra­tion is its legal inde­pen­dence from the peo­ple who cre­ate it. If a cor­po­ra­tion fails, share­hold­ers nor­mally only stand to lose their invest­ment (and pos­si­bly, in the unusual case where the shares are not fully paid up, any amount out­stand­ing on them — and not even that in the case of a No lia­bil­ity com­pany), and employ­ees will lose their jobs, but nei­ther will be fur­ther liable for debts that remain owing to the corporation’s cred­i­tors unless they have sep­a­rately var­ied this, e.g. with per­sonal guar­an­tees. This rule is called lim­ited lia­bil­ity, and it is why the names of cor­po­ra­tions in the UK end with “Ltd.” (or some vari­ant like “Inc.” and “plc”).

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, and they may be respon­si­ble for human rights vio­la­tions. 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. Five com­mon char­ac­ter­is­tics of the mod­ern cor­po­ra­tion, accord­ing to Har­vard Uni­ver­sity Pro­fes­sors Hans­mann and Kraak­man are:

• del­e­gated man­age­ment, in other words, con­trol of the com­pany placed in the hands of a board of directors.
• lim­ited lia­bil­ity of the share­hold­ers (so that when the com­pany is insol­vent, they only owe the money that they sub­scribed for in shares).
• investor own­er­ship, which Hans­mann and Kraak­man take to mean, own­er­ship by shareholders.
• sep­a­rate legal per­son­al­ity of the cor­po­ra­tion (the right to sue and be sued in its own name).
• trans­ferrable shares (usu­ally on a listed exchange, such as the Lon­don Stock Exchange, New York Stock Exchange or Euronext in Paris).

Own­er­ship of a cor­po­ra­tion is com­pli­cated by increas­ing social and eco­nomic inter­de­pen­dence, as dif­fer­ent stake­hold­ers com­pete to have a say in cor­po­rate affairs. In most devel­oped coun­tries exclud­ing the Eng­lish speak­ing world, com­pany boards have rep­re­sen­ta­tives of both share­hold­ers and employ­ees to “code­ter­mine” com­pany strat­egy. Calls for increas­ing cor­po­rate social respon­si­bil­ity are made by con­sumer, envi­ron­men­tal and human rights activists, and this has led to larger cor­po­ra­tions draw­ing up codes of con­duct. In Aus­tralia, Canada, the United King­dom and the United States, cor­po­rate law has not yet stepped into that field, and its build­ing blocks remain the study of cor­po­rate gov­er­nance and cor­po­rate finance.

More in-​depth infor­ma­tion can be found at:
http://​en​.wikipedia​.org/​w​i​k​i​/​C​o​r​p​o​r​a​t​ion

If your busi­ness is a cor­po­ra­tion, what tip or advice would you give some­one con­sid­er­ing incorporation?

Books at Amazon:

There are many good books on form­ing cor­po­ra­tions. We have linked to a few here for you at Ama­zon. We are Ama­zon Asso­ciates and funds derived from the sale of books directly go towards keep­ing this Start Your Busi­ness blog going and pro­vid­ing much needed infor­ma­tion and resources to those seek­ing it.

CrunchTime Cor­po­ra­tions by Steven Emanuel (Paper­back — Feb 20, 2009)

The Cor­po­ra­tion: The Patho­log­i­cal Pur­suit of Profit and Power by Joel Bakan (Paper­back — Mar 1, 2005)

Black Let­ter on Cor­po­ra­tions (Black Let­ter Out­line) by Robert W. Hamil­ton (Paper­back — Feb 13, 2006)

Own Your Own Cor­po­ra­tion: Why the Rich Own Their Own Com­pa­nies and Every­one Else Works for Them (Rich Dad’s Advi­sors) by Gar­rett Sut­ton (Paper­back — Oct 2001)

How To Start And Run Your Own Cor­po­ra­tion: S-​Corporations For Small Busi­ness Own­ers by Peter I. Hupalo (Paper­back — Mar 6, 2003)

Sur­pris­ingly Sim­ple: LLC vs. S-​Corp vs. C-​Corp Explained in 100 Pages or Less by Mike Piper (Paper­back — Jul 2009)

Busi­ness Asso­ci­a­tions, Sec­ond Edi­tion (Nut­shell Series) by Joseph Shade (Paper­back — Jan 6, 2006)

Inc. Your­self: How to Profit by Set­ting up Your Own Cor­po­ra­tion (Inc Your­self) by Judith H. McQuown (Paper­back — Jun 2004)

How to Form Your Own Cal­i­for­nia Cor­po­ra­tion (Book with CD) by Anthony Man­cuso Attor­ney (Paper­back — Mar 6, 2009)