What is a Corporation?
Brief Summary of Text
- Corporations are entities that are recognized as distinct from the individuals who own them
- American Corporations can be profit-making companies or non-profit entities
- Corporations are created by filing the correct documents (Documents differ from state to state)
- Only certain corporations are chartered
- Once incorporated, the corporation has artificial personhood everywhere it may operate, until it is dissolved
- A corporation that is incorporated in one state but operates in another is called a “Foreign Corporation”
- Corporate business law and tax structure differs from state to state
- Many large corporations are incorporated in Delaware due to favorable corporate tax and disclosure laws
- Companies set up for privacy or asset protection often incorporate in Nevada
Several types of corporations exist in the United States. Generically, any business entity that is recognized as distinct from the people who own it (i.e., is not a sole proprietorship or a partnership) is a corporation. This generic label includes entities that are known by such legal labels as ‘association’, ‘organization’ and ‘limited liability company’, as well as corporations proper. Only a company that has been formally incorporated according to the laws of a particular state is called ‘corporation’. American corporations can be either profit-making companies or non-profit entities. Tax-exempt non-profit corporations are often called “501(c)3 corporation”, after the section of the Internal Revenue Code that addresses their tax exemption.
Corporations are created by filing the requisite documents with a particular state government. The process is called “incorporation,” referring to the abstract concept of clothing the entity with a "veil" of artificial personhood (embodying, or “corporation” it, ‘corpus’ being the Latin word for ‘body’). Only certain corporations, including banks, are chartered. Others simply file their articles of incorporation with the state government as part of a registration process.
The federal government can only create corporate entities pursuant to relevant powers in the U.S. Constitution. For example, Congress has constitutional power to regulate banking, so it has power to charter federal banks.
Once incorporated, the corporation has artificial person hood everywhere it may operate, until such time as the corporation may be dissolved. A corporation that operates in one state while being incorporated in another is a “foreign corporation.” This label also applies to corporations incorporated outside of the United States. Foreign corporations must usually register with the secretary of state’s office in each state to lawfully conduct business in that state.
A corporation is legally a citizen of the state (or other jurisdiction) in which it is incorporated (except when circumstances direct the corporation be classified as a citizen of the state in which it has its head office, or the state in which it does the majority of its business). Corporate business law differs from state to state, and many prospective corporations choose to incorporate in a state whose laws are most favorable to its business interests. Many large corporations are incorporated in Delaware, for example, without being physically located there because that state has very favorable corporate tax and disclosure laws.
Companies set up for privacy or asset protection often incorporate in Nevada, which does not require disclosure of share ownership. Many states, particularly smaller ones, have modeled their corporate statutes after the Model Business Corporation Act, one of many model sets of law prepared and published by the American Bar Association.
As juristic persons, corporations have certain rights that attach to natural purposes. The vast majority of them attach to corporations under state law, especially the law of the state in which the company is incorporated – since the corporations very existence is predicated on the laws of that state. A few rights also attach by federal constitutional and statutory law, but they are few and far between compared to the rights of natural persons. For example, a corporation has the personal right to bring a lawsuit (as well as the capacity to be sued) and, like a natural person, a corporation can be libeled.
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