What is a Business Corporation?

Dee Saale
Dee Saale

A business corporation is a U.S. business entity created pursuant to specific state and federal laws. It is formed for the purpose of transacting some form of business. The business may not be exclusively related to trade and commerce, but may include other aspects that generate monetary gain, such as transportation, insurance, banking, mining, and manufacturing. Under the laws in most jurisdictions, the corporation is treated similar to a person. As a result, it can sue another person or corporation, and it can be sued by another person or corporation.

Corporations must have at least one owner or shareholder.
Corporations must have at least one owner or shareholder.

For a business corporation to be in effect, it must have at least one owner or shareholder, but there is no cap on the number of shareholders that a particular corporation may have. The shareholders each own an interest in the corporation, and the interests are divided into stock or shares. In addition, the business corporation is a separate entity from the shareholders. This protects the shareholders from being sued on a personal level and from losing their personal savings if the corporation should be held liable for monetary damages by a court of law.

In most jurisdictions in the United States, the business corporation becomes a legal entity when a shareholder files the Articles of Incorporation with the Secretary of State in the state where business will be conducted or headquartered. At this time, the shareholders must determine how many shares the corporation will be allowed to issue. There must be at least one share for every shareholder, but in most cases, shareholders will hold more than one share. Some shareholders may have a large ownership interest in the corporation, and they will hold shares in the same proportions. For example, a shareholder who has a 40% ownership interest in the corporation will also typically hold 40% of the shares.

A business corporation usually works with specific representatives to conduct business. In general, shareholders do not manage the daily affairs and routine business workings of the corporation. Such responsibilities are typically left to the members of the Board of Directors. The board members are elected by the shareholders and at a minimum include one director, but others may be elected as well. The director usually appoints officers who make sure the director’s requests are implemented.

Generally, the sole purpose of a business corporation is to make money. Unlike other not-for-profit organizations, where the purpose is not to generate a profit but to provide some common good for the public regardless of profit. Non-profit organizations may include religious, educational, and charitable organizations.

Many other countries create and regulate business corporations in a similar way to the United States. For example, Liechtenstein, Switzerland, Austria, England and Germany all have limited liability corporations, similar to the business corporation model. The agency that regulates the businesses may vary in name, but there are many similarities between them.

Dee Saale
Dee Saale

Dee is a freelance writer based in Colorado. She has a B.A. in English Literature, as well as a law degree. Dee is especially interested in topics relating to medicine, legal issues, and home improvement, which are her specialty when contributing to wiseGEEK.

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