Basics of Corporations

Microsoft, General Motors and other Fortune 500 companies bring to mind the notion of a corporation. But 25 million other corporations are owned by families and individuals that operate small businesses around the country.
A corporation is a legal entity authorized by a state to conduct business and own assets as though it were a living person. Unlike a natural person, however, a corporation has an endless existence until it is legally terminated. Corporate shareholders invest in the corporation and then share in its profits.

Important features of a corporation include the following:

• Each state sets its own requirements to establish and maintain a corporation.
• A corporation is a unique legal entity. It is distinguished from its shareholders in every way. By way of example, a corporation enjoys the same constitutional rights as a natural person. And, assets owned by a corporation are owned by the corporation and not its shareholders.
• The most important benefit of a corporation is that the entity protects the personal assets of its stockholders, officers and directors from the debts of the incorporated business. Because a corporation is a distinct legal entity from its shareholders, those shareholders have no personal liability for the debts of the corporation. Shareholders can only lose the amount that they paid for their shares in the corporation or the amount they loaned to the corporation if the corporation is sued and loses, or if the corporation files for bankruptcy.
• The corporation lives forever unless its corporate articles provide otherwise and the death of a shareholder does not terminate the corporation.
• Each corporation has directors that are elected by the shareholders to set corporate policy. Day-to-day operations are the responsibility of the corporation's officers, who are appointed and supervised by the board of directors. In certain cases, the president of the corporation may be elected by the shareholders.
• The shareholders own the corporation and elect the board, which must consist of at least one board member. In many states, a single individual can be the corporation's sole shareholder, director, president, secretary, and treasurer.

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