What is a Corporation?

Corporations have a long history in the business of nations, dating back many hundreds of years. They came into common use in the age of sail, when the risk and cost of launching a sea expedition often exceeded the resources of individual merchants or investors. The corporation allowed several investors to pool their resources in order to dilute the cost, and the legal nature of the corporation allowed those investors to minimize their individual risk.

In modern business, corporations exist for a variety of purposes. There are both for-profit and non-profit corporations which have different goals, but which share largely the same basic structure and operation. At their most basic, corporations are simply associations of investors which ask the government (usually a state) to recognize them officially. The corporation drafts a charter, which describes its name and purpose, and issues stock to its investors, making them shareholders.

The shareholders then elect directors to a Board of Directors of the company, which is the corporation's governing body. The Board of Directors makes all of the major decisions for a corporation, including issuance of stock, official agreements with other companies, employment of management, and so forth.

The Board of Directors' first priority is often to hire management to operate the company on a daily basis. Very often, the executive management of a corporation is recruited from the Board itself, with the Board's Chairman often functioning as a Chief Executive Officer for operational management. The Board can then empower the management of the company to operate offices or factories, hire employees, or enter into agreements to promote the corporation's business.

The chief advantage to a corporation in modern business is its nature as a completely seperate legal entity. Corporations can do just about anything a normal person can do, including entering into contracts, paying taxes, or buying and selling property. This seperate legal entity status also acts as a shield for the shareholders of the company from any liability for action taken by the corporation. If suit is brought against a corporation, the shareholders and directors of that company cannot be held liable in that suit.

Many corporations are known as "publically traded" companies. These corporations make their shares, or stock, available to be traded, bought or sold by anyone in various markets such as the New York Stock Exchange. Publically traded corporations have a variety of requirements that privately held companies do not. Publically traded companies are required to maintain a certain market capitalization, must have shares with a value exceeding the minimum price for their exchange, and must issue statements of their accounts every quarter for review by the public.

Many bookstores and libraries have a variety of sources of detailed information for people who are interested in starting a corporation or investing as a corporate shareholder, and there are also voluminous resources available on the Internet as well. The requirements for starting a corporation vary from state to state. As confusing as such business structures might seem at first, once the basic concept is understood, it is much easier to learn more.