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Corporation

A corporation is a legal entity that is legally separate from its owners.

Expanded Definition

A corporation is a style of organization usually formed by filing articles of incorporation with the Secretary of State in your state of residence (though many corporations choose to incorporate in Delaware where corporation laws are considered favorable). Other styles of organization are sole proprietorship (a business owned by an individual) and a partnership (two or more individuals share in profits and liabilities).

Under corporation law, a corporation is treated as a legal individual. The corporation has its own identity, but the major advantage is that unlike a partnership, the stockholders are not liable for the debts of the corporation. This facilitaties the accumulation of capital and makes it possible to finance large ventures. Corporations must indicate their limited liability in their names with words like company, incorporated or in UK limited. Other forms of business organization are permitted to use the same designations even though they may not be incorporated.

Corporations issue shares of stock. Stockholders own the corporation. They control the corporation by voting their shares, though some corporations issue non-voting shares and some shares have more voting rights per share than others.

Many corporations are privately held. Shares of these private corporations are not sold to the public. Instead the owners enjoy the limited liability of a corporation, but often shares to be sold are offered first to other shareholders for purchase.

Public corporations must register with the SEC, and many will file for listing on stock exchanges when they meet listing requirements. Usually a privately held corporation goes public with an initial public offering (IPO) arranged through an investment banker.

A corporation is a legal entity which must file its own tax returns and pays income taxes at corporate tax rates.

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