Corporation/CompanyCorporations/Companies are extremely important in today’s society. The growth of the modern corporation has been largely responsible for the dynamic economic development attained by this country over the last century. Through corporations, people are able to invest money in a business enterprise without worrying about unlimited liability or management responsibilities. Thus, corporation law gives business the capability to raise the capital necessary to achieve the economics of scale vital to economic efficiency. A corporation is treated as an entity separate and distinct from its owners. By incorporating it is easier to hold property over long periods of time since corporate existence is not generally threatened by the death, bankruptcy, or retirement of an individual owner. A corporation can acquire, hold, and convey property in its own name. It can also sue and be sued in its own name. The principal reason to incorporate a business today, however, is the limited liability of its shareholders. Ordinarily the owners (shareholders) of a corporation are not personally liable in its debts; their loss is limited to their investment. Corporations often are divided into publicly- held and close corporations. The stock of the close corporationis held by a family or small group of people who know one another. A publicly-heldcorporation sells shares to people who may have little interest in it except as investors. One’s status as a shareholder gives one certain ownership rights in the corporate/business, although this does not include an automatic right to be an employee. However, in numerous instances, the employees of a publicly held corporation willbecome shareholders, and the shareholders in a close corporation will serve as employees. Limited Liability Company The majority states of the world have statutes that permit businesses to operate limited liability companies (LLCs). These statutes grant LLCs the taxation benefits of partnerships and the limited liability advantages of corporations. Unlike limited partnerships, all of the investors are able to share in management. LLCs are similar to corporations and limited partnerships in that they require the filing of articles of organization with the Secretary of State. The name of an LLC must include the words “limited liability company” or some other clear indication of its limited liability feature so the public is made aware of this fact. Some states require LLCs to file annual reports with the Secretary of State. Like a corporation, an LLC is a separate entity with a legal existence apart from its individual owners. It may sue or be sued in its own name and it can buy hold, or sell property. Similarly it may enter into contracts and incur liabilities in its own name. Because of the LLC’s separate legal identity it generally is liable for its own obligations. In short, the members have limited liability. This means they risk no more than their investment in the LLC. However, as with corporations, courts will “ pierce the corporate veil ” (Piercing the corporate veil describes a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors) between the LLC and its members if an LLC is created with the intent to defraud its creditors. In those instances, the members will be personally liable on LLC debts. Unlimited Liability Company Unlimited liability companies are less common but sometimes they are useful entities, which combine characteristics of both companies and unincorporated business (sole trade or partnership). They are treated as companies for taxation purposes (they pay corporate tax instead of income tax), but the liability of theirs shareholders is unlimited. There are certain businesses, regulated by professional bodies, which are required to be unlimited companies. Governmental Corporation The governmental corporation is often called a municipal corporation. Examples are a city, a school corporation, a sewage district etc. Such governmental corporations usually, although not always, have the power to tax. They frequently operate much like business corporations except that they do not seek to make a profit. Non-profit Corporation Nonprofit corporations are similar to nontaxing governmental corporations. They differ, however, in that they are formed and operated by private persons. Examples include hospitals, clubs, and some very large businesses. Their founders and members are not permitted to make a profit from the operation of the corporation, although the officers and employees are paid salaries. Each of the states has a special statute under which nonprofit corporations are to be formed and operated. The advantages of some common types of corporations are illustrated by the Table 4.1. Table 4.1.
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