A corporation is a legal entity with separate legal life from shareholders and enjoys the rights of a natural person. Shareholders can be natural and artificial people. This means other companies or even corporations can be shareholders. Shareholders of corporations pursue a common goal to make profits but have limited liability towards financial obligations.
Under the law, corporations possess the same rights and duties as an individual. It means that it can sue and be sued, enter contracts, own assets, and even get loans from banks.
How Corporation Work
A corporation is created when a group of shareholders who own a share of the corporation decides to incorporate it. During the corporation’s creation, an annual general meeting is held where members of the board of directors are voted in. Each shareholder holds one vote per share, so the more shares one holds, the more the votes. The board of directors is tasked with decision-making on issues affecting the company.
There are two categories of corporations; Private corporations and public corporations. Shareholders are entitled to profits and dividends if the company decides to share them. The goal of creating a corporation is to return and maximize profit.
Types of Corporation
1. Limited Liability Companies
A Limited Liability Company is a type of corporation that is publicly traded on the public stock exchange.
2. General Partnerships
It is a kind of corporation with a few shareholders, and none of the shares are traded publicly.
3. C corporations
This is a type of corporation with an unlimited number of shareholders. Shares are traded publicly, and there is no limitation to the number of shareholders locally or internationally.
4. S corporations
S corporation is different from the C Corporation as it has a maximum of 100 shareholders and only one class of stock. In this corporation, profits are directly given to shareholders, and therefore the shareholders are responsible for their taxes.
5. Non-profit corporations
This is a type of corporation created for a cause meaning there are no expected profits. It has the traditional setting, the profit part being the only exception.
Example of Corporation
It is an international tech company famous for its search engine. The largest company offers internet services such as mailing services (Gmail), search engines, video services (YouTube), and Google maps.
It is also a leading tech company founded by Steve Jobs in 1976. It manufactures products like the iPhone, Mac, iPod, and other products.
This company is among the world-leading company in online shopping and eCommerce. Jeff Bezos founded it in the year 1994. Millions of people can shop on the Amazon platform, and their products will be shipped from across the world to their doorstep.
Sources of Finances for a Corporation
Corporations have three main ways of raising capital to expand a business, namely:
1. Retained profits
The main objective of companies is to make profits. When they get these profits, they use some of them to expand the business or reward investors in dividends.
2. Debt capital
Corporations can borrow loans from financial institutions seeing as they are separate legal entities. They can also issue corporate bonds publicly, which invites new investors to the firm.
3. Equity capital
Corporations could also raise capital by selling off their stocks to new investors who take up new company ownership. It is a widespread method of raising capital.
Circumstances of Dissolution of a Corporation
A corporation generally has a long life. However, some circumstances force it to be dissolved.
1. In case of bankruptcy
A corporation will essentially start by selling assets to pay debts. Whatever remains after debts have been paid will then be given to the shareholders.