What is a Corporation? Separating a Company From Other Businesses
A company, abbreviated as co. is an organized legal entity consisting of an association of individuals, whether legal, natural or a combination of both, having a single objective: to promote the interest of its members. Company members generally combine to reach defined, stated goals and share a common purpose to do so. Company-owners reap the benefits of the success of their company and its employees, while company-employees enjoy the benefits of being employed by an organization concerned about its welfare.
A company is incorporated through either a written contract or by the operation of law in its real form. When incorporation takes place through the operation of law, it is called a natural incorporation. Such incorporation does not affect the validity of any governing document unless that document affects the interests of the company. A company is considered to be formed in its natural form when it has all of the characteristics of a legally valid company and the powers of a legally valid company are transferred to the company by operation of law. In addition, a company is deemed to have been created in its natural form if it is able to demonstrate irrevocable voidability.
A company may be established either under a partnership or proprietorship. A partnership is a business structure in which one or more partners are jointly and severally liable for the conduct of business of the partnership. Under the proprietorship, one person controls the company. In addition, in a corporation, a person or an entity will act as the director of the company and have power, without share ownership, to bind the company.
The most common type of business structure is a general partnership. In a general partnership, one partner makes the initial investment and owns the remaining assets of the partnership. Partnerships may be limited liability or general. In a limited liability partnership, each partner has the power to manage the company and incurs liability to the partnership for the same amount of the partnership’s capital. With a general partnership, all of the partners share in the profits of the company.
In contrast to general partnerships, a corporation is created when two or more people form a corporation together. A corporation can be created in one day at the first shareholders’ meeting. However, unlike a partnership, there are usually no or limited options to change the ownership structure of the company. If a corporation is established, there is generally one general method of operation that each company may follow, such as a stock purchase or stock sale.
When a corporation is created, a complete set of corporate laws apply. All laws of incorporation apply to corporations except those specifically set forth in the articles of incorporation. All shareholders are subject to all tax laws that apply to individuals. The corporation may pay taxes to the federal government and may also be required by state and local governments to pay taxes based on their profit. C corporations have a much shorter period of incorporation and therefore do not pay taxes until the company reaches a certain amount of profit.
Unlike a sole proprietorship, the majority shareholder in a corporation generally doesn’t have any vote. This makes it harder to amend the by-laws and the corporation’s operating code. There are several exceptions to this rule including limited liability and the election of officers. All shareholders must be represented in meetings and all corporate directors must have gone through the same background checks and background investigations as businesses outside of the state.
A corporation may be run differently depending on its status as a corporation and there are different types of corporations. There are direct corporations, which issue stock as a public company without any actual shares of ownership. A corporation organized as a partnership allows shares of stock to be issued as a dividend. Finally, there are indirect corporations, which issue shares or dividends to stockholders and which receive the income in the form of stock dividends. Corporations may be separated into one of four basic types: C, D, E or F.
