Characteristics of a Corporation
The five main characteristics of a corporation are limited liability, shareholder ownership, double taxation, continuing lifespan, and professional management. A corporation is a legal entity separate from its owners and grants the owners limited liability against debts and lawsuits filed against the company.
Advantages and Disadvantages
Advantages of a corporation include liability protection, business security, and easier access to capital. Disadvantages include being time-consuming, subject to double taxation, and having rigid protocols. Corporations are separate from their owners, and ownership transfers among stockholders have no effect on daily operations or assets and liabilities. Even in bankruptcy, stockholders’ losses are limited to their capital investment.
Structure and Functionality
Corporations can have various structures, but they typically consist of a board of directors, officers, employees, and shareholders or owners. They possess rights and responsibilities similar to individuals — they can enter contracts, loan money, hire employees, own assets, and pay taxes. Shares are issued to raise capital. Dividends from profits are distributed to shareholders, and the number of shares issued depends on the amount of capital to be raised.
S Corporations
An S corp allows profits and some losses to pass directly to owners’ income without corporate tax, thus avoiding the double taxation that traditional corporations are subject to.
Regulatory Compliance
Attributes of a registered company include separate legal existence and regulatory compliance. Consider potential for double taxation and regulatory burden when incorporating.
Investment Perspective
As an investor, understanding the characteristics of a corporation can help make informed decisions. Limited liability for shareholders provides security, encouraging investment, and aiding corporate growth. The life of a corporation is stated in the charter granted by the state and most modern corporations elect a perpetual life.
Summary
In summary, corporations offer limited liability to their shareholders, meaning the owners are not personally liable for the corporation’s debts and obligations. This structure provides financial and legal protection for shareholders’ personal assets.