Encyclopedia > Business entity

  Article Content


Redirected from Business entity

A corporation is a legal entity, other than a natural person which often has similar rights in law as a person. In civil law systems corporations are referred to as moral persons[?] and may also go by the name SA (society anonymous) or something similar, depending on the language. In modern practice, corporation is often used more narrowly to mean commercial entities created within a governmental framework. However, monasteries, interest-groups, (both can be formed as not-for-profit corporations) cities and townships (often chartered as public corporations) among others, may also have corporate identities, some with lengthy histories.

Within the narrower commercial framework, a corporation or in some jurisdictions a company is a legal, artificial entity with stockholders, who may be humans, trusts or other corporations. In effect, the corporation is a collective of individuals with a special legal status and privileges not given to ordinary unincorporated businesses 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.

Historically, most U.S. states issued charters for fixed lengths of time (e.g. a manufacturing corporation might be chartered for forty years), and only by an act of the legislature. The theory behind a limited charter was that it 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.

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 may merely be part of the business entities name. Some of the magic words used to signify corporation status that can only be used with state sanction include: Limited (Ltd.), Unlimited, Incorporated (Inc.), Corporation (Corp.), S.A. (Societe annon.). Some jurisdictions require that one of a list of terms or abbreviations appear in the corporate name. Generally speaking if a corporate, be it domestically created or foreign (from another jurisdiction) it must be registered to conduct business in a state, such a registry will also designate the principal addresss of the corporation, i.e. where it may be contacted for legal process.

Sometimes called a "fictional person" a corporation enjoys many of the rights and obligations of individual citizens such as the ability to own property, sign binding contracts , pay taxes, and otherwise participate in society. Typically a corporation is governed by a board of directors which has a fiduciary duty to look after the interests of the corporation.

Two of the most salient features of incorporation are (1)the reduction of the investors' personal liability for the corporation's actions, usually limited to the investment when the individual purchased the corporate stock and (2) the perpetuation of the assets and structure of the corporation beyond the lifetime of any of its shareholders, officers or directors.

Early corporations of the commercial sort, such as the Dutch East India Company were formed under frameworks set up by governments to undertake tasks which were too risky or too expensive for individuals or the governments to embark upon. Kenneth Pomeranz[?], an economic historian, argues that the need to perform pseudo-governmental operations such as the waging of war was the reason this economic structure developed in Europe and not in China or the Middle East.

In modern economic systems, the corporate form of governance is commonly used for 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 when applying principles to non-profit organizations as the underlying structures are often very similar.

In the United States there are several corporate forms; what are generally called corporations are businesses run for profit that have been granted corporate charters by the States of the United States. 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 are typically chartered in Delaware, which charges no tax on activities outside the state and has courts experienced in business law. Corporations set up for privacy or asset protection are often chartered in Nevada, which allows setting them up with no record of who owns them.

In Canada both the federal government and the provinces have corporate statutes, and thus a corporation may have a provincial or federal charter. Many older corporations in Canada were created by an Act of Parliament before the general corporation law was passed.

Related topics: Preferred stock[?], Corporate governance, Bylaws[?], Delaware corporation, Commercial law, Stock certificates[?]

Other related types of business entities

In recent years a new type of entity have become popular in many jurisdictions called the limited liability company[?] (LLC). This is a hybrid between a partnership and a corporation, similar to the limited liability partnership[?] (LLP).

A partnership is a contractual agreement between individuals and/or corporations in which profits and losses are shared. It is similar to a sole proprietorship[?] but it has more than one member, each called partners. A partnership is not considered a separate entity and the partners are all liable 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 be reorganized at that time).

The limited liability partnership (LLP) is, like a partnership, a type of contract though there is some limitation of liability based upon the LLP's structure and relevant statutory law. The LLP is directed by a general partner or general partners, they may be corporations or individuals, and other limited partners[?]. The limited partners enjoy the limited liability common to corporations if they do not participate in the management of the business which is left to the general partner(s) who are generally jointly and individually liable for all the debts of the partnership. Liability of each limited partners is limited to the amount of the investment by each the limited partner. Limited partners may be corporations or individuals. Since the LLP is formed by contract it can be tailored to individual needs of the managers and investors, however, such flexibility also requires complex disclosure. For tax purposes (in the United States) the limited partnership is not treated as a separate entity and each partner is tax on his income.

The limited liability company (LLC) has developed to provide an entity that is both as flexible as the LLP with all the benefits of the corporation. The basic structure is similar to the limited liability partnership, except that investors are called members, and personal liablity can be limited for all the members, those participating in the daily operations of the business as well as those who are just silent investors. For purposes of taxation in the United States an LLC can elect its classification for federal tax purposes; an LLC with two or more members can elect to be an association (corporation) or a partnership; an LLC with one member can elect to be an association (corporation) or elect to be disregarded as an entity separate from its owner (in effect, treated as a sole proprietorship for federal tax purposes). Today the LLC is quickly become the most common form of small business[?] entity, though it is often not as simple to form as a corporation.

There is also a final type of business entity that can be used, though it is most often used as a vehicle for investment purposes, called a business trust[?]. In many jurisdictions it has become popular as a vehicle for investing in real estate, which are called real estate investment trusts[?] or REITs[?] (pronounced reets).

Corporate taxation in the United States

In the United States business corporations are taxed 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 301.7701-2 through 301.7701-4]

Two of the major types of corporations for taxation purposes are:

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). They declare such profits and losses as part of their personal income taxes[?]). Various restrictions exist on who can own an S-corporation, including a prohibition on non-US citizens[?] and other corporations.

C-Corp[?] - Most common form of corporation, the C-corporation has few ownership restrictions and must pay corporate taxes[?], most publicly traded corporations are C-corporations. A C-corporation is managed by a board of directors usually elected by the owners of the company's common stock[?] in proportion to their ownership of the company, and is managed by a CEO who is hired by the board and who may or may not have any ownership interest in the company.


  • Corporations have neither bodies to kick nor souls to damn. ---- Andrew Jackson

See also: Lists of companies, Public Limited Company (plc), Corporate state

All Wikipedia text is available under the terms of the GNU Free Documentation License

  Search Encyclopedia

Search over one million articles, find something about almost anything!
  Featured Article
East Islip, New York

... For every 100 females there are 95.2 males. For every 100 females age 18 and over, there are 90.1 males. The median income for a household in the town is $71,106, ...

This page was created in 34 ms