The word corporation represents an organization, which works completely separately from its owners, and it is in itself a legal body capable of presenting an argument and making decisions. The corporation works as an individual identity, because it has all the similar rights. It can buy and sell properties, and go to the court and ask for its rights. It can hire and sack people, pay the applied taxes, and manage personalized assets.

Limited Liability

The most important concept of understanding the need for creating corporations is to study the concept of limited liability. Corporations are created to eliminate the liability that falls on individuals. Individuals who are part of a corporation are exempt from personally being answerable for the decisions taken by the limited corporation.

Limited liability means that the corporation owners, who are generally shareholders, are not responsible for the failures of the company such as getting into debts. Although they receive company profits through dividends and their stock values are appreciated if the business is doing well and expanding.

Running a Corporation

Corporations are often termed as limited companies. They are owned by shareholders. A public corporation is a company whose shares are traded on a stock exchange, and it has common stock shareholders. These shareholders are responsible for selecting a board of directors. These directors are then responsible for taking all the business decisions of the corporation.

Corporations are designed to fulfill a particular aim, and most corporations are designed to return profits to their shareholders. Corporations use stocks to generate the capital available to them, and in return they make the shareholders the owners of the corporation in relation to their number of shares.

Stock Corporations

There are two kinds of corporations according to the availability of common stock or not. Usually, profit making organizations issue stocks to raise large capitals, but some corporations like to remain owned by only a few people that are usually referred to as members of the company.

Non-Profit Corporations

There are also many corporations around the world which are created for non-profit ambitions. These corporations generally serve a philanthropic need, and are always non stock corporations because their value cannot be allowed to be traded in the market, which creates the concept of generating profits.

Legal Liability

Corporations are liable for their actions just like humans, and they can be guilty of committing crimes, and the courts can listen to trials that are against a corporation entity. On the other hand, they are also allowed to file for grievance just like individuals if a crime has been committed against them.

Further Reading

  • Financing of corporations – [PDF]
  • The neoliberal paradox: The impact of destructive product market competition and impatient finance on nonfinancial corporations in the neoliberal era – [PDF]
  • Strategic venture capital investing by corporations: A framework for structuring and valuing corporate venture capital programs. – [PDF]
  • Ownership and financing structures of listed and large non‐listed corporations – [PDF]
  • The impact of the corporate sector purchase programme on corporate bond markets and the financing of euro area non-financial corporations – [PDF]
  • Financial reorganization of American corporations in the 1980s – [PDF]
  • Financing obstacles and growth: an analysis for euro area non-financial corporations – [PDF]
  • Why Chinese public listed corporations hold high-scale cashes?[J] – [PDF]