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Corporation

A corporation is a legal entity which, while being owned collectively by a number of natural persons, exists completely separately from them. This separation gives the corporation unique powers which other legal entities lack. The extent and scope of its status and capacity is determined by the law of the place of incorporation.

Investors and entrepreneurs often form joint stock companies and incorporate them to facilitate a business; as this form of business is now extremely prevalent, the term corporation is often used to refer specifically to such business corporations. Corporations may also be formed for local government (municipal corporation), political, religious, and charitable purposes (not-for-profit corporation), or government programs (government-owned corporation).

Ownership and control

Humans and other legal entities composed of humans (such as trusts and other corporations) can have the right to vote or share in the profit of corporations. In the case of for-profit corporations, these voters hold shares of stock as proof of ownership of the corporation, and are thus called shareholders or stockholders. When no stockholders exist, a corporation may exist as a non-stock corporation, and instead of having stockholders, the corporation has members who have the right to vote on its operations. If the non-stock corporation is not operated for profit, it is called a not-for-profit corporation. In either category, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not provided to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals.

For the purposes of the next few paragraphs, the term "members" will be used to refer to stockholders of a stock corporation and members of a non-stock corporation.

Typically, a board of directors governs a corporation on the behalf of the members. The corporate members elect the directors, and the 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 are usually chosen by the board to manage the affairs of the corporation.

Corporations can also be controlled (in part) by creditors such as banks. In return for lending money to the corporation, creditors can demand a controlling interest analogous to that of a shareholder, including one or more seats on the board of directors. Creditors are not said to "own" the corporation as shareholders do, but can outweigh the shareholders in practice, especially if the corporation is experiencing financial difficulties and cannot survive without credit.

Members of a corporation are said to have a "residual interest." Should the corporation end its existence, the members are the last to receive its assets, following creditors and others with interests in the corporation. This can make investment in a corporation risky; however, the risk is outweighed by the corporation's limited liability, which ensures that the members will only be liable for the amount they contributed. This only applies in the case of for-profit corporations; non-profits are not allowed to have residual benefits available to the members.

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From Wikipedia