This lesson introduces corporations as a distinct legal form of business. It explains how a corporation is created, who owns it, what rights it has, and why limited liability depends on observing corporate formalities.
A corporation is a business entity formed under state law. Its original owners, called incorporators, typically create it by filing articles of incorporation or similar documents with a state agency, often the secretary of state. Incorporation creates a legal entity separate from the people or organizations that own it.
All flashcards
What is a corporation?
A business entity formed under state law that has a legal identity separate from its owners.
What are articles of incorporation?
Formation documents filed with a state agency by incorporators to create a corporation.
What does a share of stock represent?
A proportional ownership interest, or equity, in the corporation that issued it.
What is limited liability?
A legal protection that generally limits shareholders’ personal responsibility for corporate obligations to the value of their investment.
What does piercing the corporate veil mean?
A court allows a creditor to reach an owner’s personal assets because the corporation was not treated as a properly separate entity or other relevant legal standards were met.
Quiz questions
In a conventional corporate governance structure, which statement describes the roles of shareholders, directors, and officers?Answer: Shareholders generally elect directors, who appoint officers to manage daily operations.
What is the general federal income-tax distinction between C corporations and S corporations?Answer: C corporations generally pay tax on profits; S corporation income generally passes through to shareholders.
In U.S. business terminology, what makes a corporation publicly traded?Answer: Its shares are available for buying and selling in a public marketplace.
Which description best fits a closely held corporation?Answer: It usually has a small group of shareholders and shares not traded on an open market.
How does a state-law benefit corporation differ from a certified B corporation?Answer: Benefit status is a legal form; B certification is a voluntary private certification.
Based on Entrepreneurship by Michael Laverty, Chris Littel (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.