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A corporation is a legal entity separate from the persons that form it. It is a legal entity owned by individual stockholders. In British tradition it is the term designating a body corporate, where it can be either a corporation sole (an office held by an individual natural person, which is a legal entity separate from that person) or a corporation aggregate (involving more persons). In American and, increasingly, international usage, the term denotes a body corporate formed to conduct business.
Corporations exist as a product of corporate law, and their rules balance the interests of the shareholders that invest their capital and the employees who contribute their labor. People work together in corporations to produce value and generate income. In modern times, corporations have become an increasingly dominant part of economic life. People rely on corporations for employment, for their goods and services, for the value of the pensions, for economic growth and social development.
The defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, shareholders normally only stand to lose their investment (and possibly, in the unusual case where the shares are not fully paid up, any amount outstanding on them - and not even that in the case of a No liability company), and employees will lose their jobs, but neither will be further liable for debts that remain owing to the corporation's creditors unless they have separately varied this, e.g. with personal guarantees.
Despite not being natural persons, corporations are recognized by the law to have rights and responsibilities like actual people. Corporations can exercise human rights against real individuals and the state, and they may be responsible for human rights violations. Just as they are "born" into existence through its members obtaining a certificate of incorporation, they can "die" when they lose money into insolvency (bankruptcy). Corporations can even be convicted of criminal offences, such as fraud and manslaughter. Five common characteristics of the modern corporation are...
- delegated management, in other words, control of the company placed in the hands of a board of directors
- limited liability of the shareholders (so that when the company is insolvent, they only owe the money that they subscribed for in shares)
- investor ownership which is ownership by shareholders.
- separate legal personality of the corporation (the right to sue and be sued in its own name)
- transferrable shares (usually on a listed exchange, such as the London Stock Exchange, Nasdaq, New York Stock Exchange)
Ownership of a corporation is complicated by increasing social and economic interdependence, as different stakeholders compete to have a say in corporate affairs. In most developed countries excluding the English speaking world, company boards have representatives of both shareholders and employees to "codetermine" company strategy. Calls for increasing corporate social responsibility are made by consumer, environmental and human rights activists, and this has led to larger corporations drawing up codes of conduct. In Australia, Canada, the United Kingdom and the United States, corporate law has not yet stepped into that field, and its building blocks remain the study of corporate governance and corporate finance.
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Corporations
