What Is Corporation?
A corporation is a legal entity that is distinct from its owners, having limited liability protection, the capacity to raise capital, and perpetual life. It can enter into contracts, hold assets, and be sued apart from its shareholders.
Types Of Corporations
- One Person Corporation (OPC): It has only one owner and blends the corporate advantages with a proprietorship firm.
- Limited Liability Partnership (LLP): Blends corporate advantages with partnership flexibility.
- Private Corporation: Owned by a small number of people and not publicly owned.
- Public Corporation: Its shares are publicly traded on stock exchanges.
- For-Profit Corporation: Exists to make profits for shareholders.
- Nonprofit Corporation: Focuses on social, educational, or humanitarian objectives.
- Government Corporation: Owned by the government to offer services to the public (post office, etc.).
How Does Corporation Work?
- Formation: Incorporated under an enactment to get a registration certificate and tax identification.
- Ownership & Shareholders: Investors purchase shares in order to own part of the company.
- Management Structure: It is run by a board of directors who appoint managers (CEO, CFO).
- Raising Capital: May issue stocks and bonds to finance business operations.
- Operations & Decision-Making: Controlled by executives with the board's supervision.
- Legal Compliance: Must comply with corporate laws, pay taxes, and file financial reports.
- Profits & Dividends: Profits are reinvested in expansion or paid to shareholders.
Advantages Of Corporation
- Limited Liability: Owners are not personally responsible for business debts.
- Perpetual Existence: The company continues even if owners change.
- Capital Raising Ability: Can sell stocks and raise capital with ease.
- Credibility & Growth: Increased trust from customers, investors, and banks.
Key Takeaways
A corporation is a legal business entity distinct from its owners. It functions under a formal management system with shareholders, a board of directors, and executives directing business operations. Corporations are categorised as OPCs, LLPs, nonprofits, private or public corporations. The major benefits are protection from liability, simplicity in raising funds, credibility, tax advantage, and long-term stability, which make them the most desirable for large businesses.
