Corporation (US law)

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This article is about Corporation (general). For other uses of the term Corporation, please see Corporation (disambiguation).

A corporation is a legal entity that is distinct from its owners and may employ people, buy and sell assets, and lend or borrow money; it is jointly owned by shareholders, who participate in its profits but are not personally liable for its debts. 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.

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.

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.

Types of corporations:

  • C-corporation, probably the best-known, is the organization chosen by most large corporations. Can be publicly traded, or privately held. Publicly traded C-corporations are regulated by the SEC.
  • 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.

See also

  • Internal control [r]: Process effected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. [e]