10 Major Features/ Characteristics of Corporation

Characteristics of Corporation

A corporation is a legal entity that is separate from its owners (shareholders) and is created to conduct business.

It can own assets, incur liabilities, and enter into contracts in its own name.

Corporations are typically larger in scale and are governed by a board of directors, which oversees management and strategic decisions.

This structure is ideal for businesses seeking to raise capital, limit liability, and achieve long-term growth.

Here are the 10 most common characteristics of corporation.

Separate Legal Entity

A corporation is a distinct legal entity, separate from its shareholders.

This means it can own property, sue or be sued, and enter into contracts independently.

For example, if a corporation faces a lawsuit, the shareholders’ personal assets are protected.

This separation ensures that the corporation can operate continuously, even if ownership changes over time.

It also provides a clear distinction between business and personal liabilities.

Limited Liability

One of the most significant advantages of a corporation is limited liability.

Shareholders are only liable for the amount they have invested in the company.

For instance, if a corporation incurs debts or faces bankruptcy, shareholders’ personal assets remain unaffected.

This feature encourages investment and reduces financial risk for individuals, making corporations an attractive option for large-scale business ventures.

Perpetual Succession

A corporation has a perpetual existence, meaning it continues to exist regardless of changes in ownership or management.

For example, if a shareholder passes away or sells their shares, the corporation remains operational.

This stability ensures long-term planning and continuity in business operations, which is essential for building trust with stakeholders and achieving sustainable growth.

Transferability of Shares

In a corporation, shares can be freely bought and sold, allowing ownership to change without disrupting operations.

For instance, stock exchanges facilitate the trading of shares in public corporations, making it easy for investors to enter or exit.

This liquidity attracts investors and provides flexibility for shareholders, enabling the corporation to raise capital more efficiently.

Professional Management

Corporations are typically managed by a board of directors and professional managers, rather than the owners themselves.

For example, a CEO and executive team handle day-to-day operations, while the board oversees strategic decisions.

This separation of ownership and management ensures that skilled individuals run the corporation, leading to better decision-making and operational efficiency.

Ability to Raise Capital

Corporations can raise funds by issuing shares or borrowing through loans and bonds.

For example, public corporations often raise capital through initial public offerings (IPOs).

This ability to access large amounts of capital enables corporations to expand, invest in new projects, and compete effectively in the market.

It also allows them to attract a diverse pool of investors.

Regulatory Compliance

Corporations must adhere to various legal and regulatory requirements, such as filing annual reports, paying taxes, and maintaining transparency.

For instance, publicly traded corporations are required to disclose financial information to shareholders and regulators.

These obligations ensure accountability and protect the interests of stakeholders, including shareholders, employees, and customers.

Complex Structure

Corporations have a more complex organizational structure compared to other business forms.

They typically include a board of directors, executive officers, and various departments.

For example, a large corporation may have separate divisions for marketing, finance, and operations.

This structure allows for specialized roles and efficient management but also requires careful coordination and communication.

Double Taxation

One disadvantage of corporations is double taxation.

The corporation pays taxes on its profits, and shareholders also pay taxes on dividends they receive.

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For example, if a corporation earns $1 million in profit, it pays corporate tax on that amount, and shareholders pay personal income tax on any dividends distributed.

While this can be a drawback, corporations often benefit from lower tax rates on retained earnings.

Global Reach

Corporations often operate on a large scale and can expand internationally.

For instance, multinational corporations like Apple and Microsoft have operations in multiple countries.

This global reach allows corporations to access new markets, diversify revenue streams, and leverage economies of scale.

It also requires them to navigate complex international regulations and cultural differences.

In conclusion…

A corporation is a powerful and versatile business structure that offers numerous advantages, such as limited liability, perpetual existence, and the ability to raise capital.

Hence, these are the 10 notable characteristics of corporation.

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