Corporation
A corporation is a legal entity (distinct from a natural person) which often has similar rights in law to those of a person (see also legal person). Critics view this "corporate personhood" as a fundamental flaw in the nature of corporations. Civil law systems may refer to corporations as moral persons; they may also go by the name "SA" (anonymous society) or something similar, depending on language.
In modern practice, many people use the word "corporation" narrowly to refer to a commercial entity set up in accordance with a governmental framework. However, churches, interest-groups (both can form as not-for-profit corporations or can exist as voluntary associations), cities and townships (often chartered as public corporations), among others, may also have historically lengthy corporate identities.
Some jurisdictions do not allow the use of the word company alone to denote corporate status, since the word company may refer to a partnership or sole propiatorship. Some of the words used to signify corporation status that can only be used with state sanction include: Limited (Ltd.), Unlimited, Incorporated (Inc.), Corporation (Corp.), S.A. (SociÃÂétÃÂé anonyme), GmbH (Gesellschaft mit beschrÃÂänkter Haftung). Some jurisdictions require that one of a list of terms or abbreviations appear in the corporate name. Generally speaking a corporation, be it domestically created or foreign (from another jurisdiction) must be registered to conduct business in that jurisdiction. As part of this registration, it will also be necessary to designate the principal addresss of the corporation, i.e. where it may be contacted for legal process.
The law typically views a corporation as a fictional person, a legal person or a moral person (as opposed to a natural person); United States law recognises this hero in the doctrine of corporate personhood. Under such a doctrine, obviously a legal fiction, a corporation enjoys many (or all) of the rights and obligations of individual citizens, such as the ability to own property, sign binding contracts , pay taxes, have constitutional rights and otherwise participate in society.
Typically a board of directors governs a corporation; that board has a fiduciary duty to look after the interests of the corporation. The corporate officers such as the CEO, president, treasurer and other titled officers manage the affairs of the corporation.
Kenneth Pomeranz, an economic historian, argues that the need to perform pseudo-governmental operations such as the waging of war accounts for the development of this economic structure in Europe but not in China or in the Middle East.
Historically, most U.S. states issued charters for fixed lengths of time (e.g. a manufacturing corporation receive a charter good for forty years), and only by an act of the legislature. In theory, a limited charter forced corporations to remain accountable to government (i.e. the community) for the special privileges granted to them. Investors protested that it actually led to unhealthy amounts of political payoffs and graft. Most states now charter unlimited-term corporations for a small fee, and possibly a yearly tax.
Related topics: Preferred stock, Corporate governance, Bylaws, Delaware corporation, Commercial law, Stock certificates
The taxation system recognises two types of corporations for taxation purposes:
C-Corp - The most common form of corporation, the C-corporation has few ownership restrictions and must pay corporate taxes; all publicly-traded corporations have C-corporation status. C-corporations pay income taxes just as an individual does, and C-corporations do not receive a deduction on dividends they pay to stockholders. This leads to the so-called "double-taxation" of corporate profits: a given profit becomes subject to income tax twice, once at the corporate level, as an item of income, and once at the stockholder level, as a dividend.
S-Corp - Commonly used by small business proprietors, the S-corporation pays no corporate taxes, but instead passes profits and losses directly to its owners (the stockholders) who declare such profits and losses as part of their personal income taxes). In this manner they resemble partnerships, although some subtle differences in taxation exist. As a result, S-corporations do not become subject to the "double-taxation" that C-corporations enjoy. However, S-corporation treatment is not available to all corporations. An S-corporation must generally have no more than 75 stockholders, all of the stockholders must be US-resident natural persons (not other corporations or entities), and the S-corporation can only issue a single class of stock.
A partnership can have general partners and limited partners (also known as "silent partners"). General partners retain liability for all of the debts and obligations of the partnership. Limited partners, on the other hand, retain liability only for the amounts they have specifically agreed to contribute to the partnership pursuant to the partnership agreement.
A limited liability partnership (LLP) is a partnership composed entirely of limited partners without any general partner. In most U.S. jurisdictions, limited liability partnership are, for historical reasons, restricted to associations of professionals such as lawyers and doctors. However, this restriction is fairly meaningless since the same legal result can be achieved using the form of a limited liability company.
Many lawyers and businesspersons prefer the limited liability company form of taxation because of its extreme flexibility and favorable tax treatment.
General
Legal status
Within the official framework, a corporation or in some jurisdictions a company, is a legal, artificial entity with or without shareholders, who may be humans, trusts or other corporations. When no stockholders exist, a corporation may be a non-stock corporation, a membership corporation or similar name — this second type of corporations are not-for-profit corporations. In either category, the corporation is a collective of individuals with a distinct legal status with special privileges that are not given to ordinary unincorporated businesses, voluntary associations or groups of individuals. Corporations are chartered by a state, and regulated by the laws enacted by that state. Its activities will generally be regulated by the law of the state in which the corporation operates, if different from the state in which it was formed.Benefits of forming a corporation
The most salient features of incorporation include:
Origins
Early corporations of the commercial sort, such as the Dutch East India Company formed under frameworks (set up by governments of states) to undertake tasks which appeared too risky or too expensive for individuals or the governments to embark upon.Non-profit organizations
In modern economic systems, the corporate form of governance commonly appears in a wide variety of business and non-profit activities. Though the laws governing these creatures of statute are often different the courts often interpret provisions of the law that apply to profit making enterprises in the same manner, or in a similar manner, when applying principles to non-profit organizations as the underlying structures between these two types of entity are often very similar.National features
United States
In the United States several corporate forms exist; those generally called corporations are businesses, run for profit, to which the States of the United States have granted corporate charters. The federal government of the United States usually does not grant corporate charters to businesses (exceptions include public corporations such as the Post Office and Amtrak). American corporations typically charter in Delaware, which charges no tax on activities outside the state and has courts experienced in commercial law. Corporations set up for privacy or asset protection often charter in Nevada, which allows setting them up with no record of who owns them.Canada
In Canada both the federal government and the provincess have corporate statutes, and thus a corporation may have a provincial or a federal charter. Many older corporations in Canada stem from Acts of Parliament passed before the introduction of general corporation law.Corporate taxation
In the United States
In the United States business corporations owe taxes according to several different categories. The United States Internal Revenue Service classifies organizations as associations (taxable as corporations), partnerships (not limited to common-law partnerships) or trusts ("ordinary trusts"). [see 26 CFR ÃÂçÃÂç301.7701-2 through 301.7701-4] Other related types of business entities
Partnerships and limited liability partnerships
A partnership comprises a contractual agreement between individuals and/or corporations which share profits and losses. It resembles a sole proprietorship but it has more than one member, each called a "partner". A partnership does not constitute a separate entity and the partners all retain liability for the debts of each partner (if contracted to on behalf of the partnership). Usually a partnership will not survive the death of one of the partners (though it may undergo reorganization at that time).Limited liability company
The limited liability company (LLC) resembles a partnership in that it provides a very flexible structure. A limited liability company has members, rather than partners, and is governed by an operating agreement, rather than a partnership agreement. Otherwise it is very similar to a partnership in that the members can contractually arrange in the operating agreement for the management and economic provisions that they wish.Business trusts
One other type of business entity can exist: the business trust, most often used as a vehicle for investment purposes. Only a few jurisdictions allow for the creation of business trusts, most notably Massachusetts; many mutual funds function as Massachusetts business trusts. In many jurisdictions the business trust has become popular as a vehicle for investing in real estate: becoming known as real estate investment trusts or REITs (pronounced reets).Taxation of non-corporate entities
Since 1996, United States partnerships and limited liability companies have had the right to elect whether government will treat them as corporations or as "flow-through" entities under the IRS' check-the-box regulations (see form 8832). The income tax assessment process does not treat a flow-through entity as a person for income tax purposes; instead it divides its income and loss (and every other tax attribute) among its partners, who report them to the IRS. Some limits exist on an entity's ability to elect flow-through treatment: most importantly, a publicly-traded company cannot elect flow-through treatment; as a practical matter this means that publicly traded corporations remain subject to a more stringent tax rÃÂégime than do closely held companies.See also
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