A corporation is a legal entity. Most are formed to run a business and make a profit, but some are formed as a non-profit, to provide some other benefit. Corporations are considered a separate legal entity, and thus can sue, be sued, and enter contracts.
Types of corporations
There are several different classes of corporation. A C-corporation, probably the best-known, is the organization chosen by most large corporations. A C-corporation can be publicly traded, or privately held. Publicly traded C-corporations are regulated by the SEC.
Another form of organization is the S-corporation. S-corporations are limited to 100 stockholders or less, and are not publicly traded. One advantage of the S-corporation is that earnings are not taxed at the corporate level; rather they are taxed at the dividend tax rate when stockholders receive dividends.
Advantages of a corporation
Corporations provide limited liability; that is, investors cannot be forced to pay from their personal asset for debts of the business. Publicly-traded corporations have access to huge capital markets by offering stocks, bonds and other investments to the public. There is also some degree of prestige associated with being a corporation, and corporations often have an easier time attracting skilled workers.
Disadvantages of a corporation
In the United States, C-corporations are subject to corporate income taxes, while the salaries of workers and the dividends of investors are again taxed as personal income, resulting in double taxation. Corporations involve a greater deal of bureaucracy than other forms of organization, particularly for public companies who must fully disclose their financial data.