Corporation Definition

Businesses come in all sizes and types. For example, sole proprietorships and general partnerships tend to be quite small, whereas limited liability companies (LLCs), professional limited liability companies (PLLCs), and corporations tend to be larger and more intricately run. 

This article covers all the need-to-know facts about a corporation: what this business is, how many types of corporations exist, how they work, and more.

What is a corporation?

A corporation is a legal entity that is separate from its owners. A corporation can be considered a “legal person” under the law, meaning it can possess the rights and responsibilities of an individual. Corporations can take out loans, enter contracts, own assets, hire workers, pay taxes, and face legal issues like lawsuits. 

Generally speaking, there are two types of corporations: C corporations (C corps) and S corporations (S corps). This guide will discuss those types at length a little later. 

Benefits of a Corporation 

All business entities have their fair share of benefits, and corporations are no different. Here are a few. 

Additional Protection

A corporation offers protection for its shareholders. It removes the liability of a shareholder from being responsible for any corporate-related debts. 

Attracting Investors 

Corporations tend to find it easier to attract investors since they have the ability to issue stock. 

Company Continuation 

Corporations can continue to exist indefinitely thanks to “continuity of existence.” The company can continue doing business if its owners, shareholders, directors, or officers leave the company or die. 

Stock Transfers

With a corporation, stock ownership is easily transferable, making it attractive for investors. 

Corporation Considerations

When running a corporation, a business owner will have to consider plenty of factors and options so the business runs smoothly. A few of these considerations apply when creating the business, while others apply after:

• Draft Articles of Incorporation.
• Draft corporate bylaws. Note that not all states require this. 
• Appoint officers and detail their responsibilities (which powers they have). 
• Secure funding through appropriate means, like selling securities. 

These are just a few, and this isn’t a closed list. Different business owners may run into other considerations, so it can be wise for entrepreneurs to do their research to help guide their decisions. 

Other Names for a Corporation

Earlier, this guide mentioned that corporations can be labeled as a C corp or an S corp. Here is what those distinctions mean.

C Corporations 

From a tax standpoint, a corporation is classified as a C corp by default. C corps provide full separation between the business and its owners. So long as the business follows all corporate formalities, the shareholders, officers, and directors won’t be held liable for company debts. 

One thing to keep in mind is that C corps are subject to “double taxation,” meaning that taxes on the business’s revenue are collected at the corporate level. The shareholders also pay income taxes on the dividends from the company’s profits. 

S Corporations 

An S corp is more of a tax designation than it is a business type. A C corp can elect to identify itself as an S corp for tax purposes with the IRS; however, the process can be difficult. What differentiates an S corp from a C corp is that the former passes its income, deductions, losses, and other credits to the shareholders without having to pay corporate taxes. This avoids the double taxation clause that C corps have. 

Corporation Examples

Corporations are everywhere. Most people have made countless purchases from a big-name corporation. Here are a few popular companies that are corporations:

• Microsoft 
• Amazon
• Apple
• General Motors
• Walmart
• Bank of America 
• Comcast
• Toyota

ZenBusiness Can Help

Starting a business can feel like an overwhelming prospect, but no entrepreneur has to navigate it alone; ZenBusiness is here to help. They have a variety of services geared towards business formation, operation, and growth. With their expert guidance, ZenBusiness helps entrepreneurs navigate every aspect of the corporation setup process.