A corporation is a business structure with a legal identity separate from its owners. This lesson introduces what that separation means and outlines the steps involved in creating a corporation.
A corporation is a legal entity formed under the laws of a state. The state grants the corporation permission to operate through a corporate charter. Because the corporation exists separately from its owners, it can own property, enter contracts, conduct business, and sue or be sued in its own name.
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What is limited liability?
A principle that generally limits a stockholder’s responsibility for corporate debts to the amount invested, subject to exceptions.
What is a corporate charter?
State-issued authorization for a corporation to operate as a legal business entity.
How do stockholders, directors, and officers differ?
Stockholders own the corporation, directors govern and oversee it, and officers manage its daily operations.
What is an S corporation?
A corporation that may qualify for pass-through tax treatment if it meets eligibility requirements.
What is double taxation for a C corporation?
Corporate profits may be taxed to the corporation, then distributed dividends may be taxed to stockholders.
Quiz questions
Which responsibility primarily belongs to a corporation’s board of directors?Answer: Setting major policies, hiring officers, and overseeing corporate affairs.
What is commonly meant by double taxation of a conventional C corporation?Answer: Corporate profits may be taxed, and distributed dividends may also be taxed to stockholders.
Which restriction is stated for S corporation eligibility in these notes?Answer: It may have no more than 100 qualifying shareholders and only one class of stock.
Which obligations are associated with public corporations selling stock to the public?Answer: Securities registration before public stock sales and ongoing disclosure requirements.
How can corporations raise funds from investors through ownership?Answer: By issuing shares that represent units of ownership.
Based on Introduction to Business 2e by Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, James C. Hyatt (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.