. . . 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:
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)