What is a Corporation?
Most businesses start out as a small company, owned by one person or by a partnership. The most common type of business when there are multiple owners is a corporation. The law sees them as real, live person. Like an adult, it is treated as a distinct and independent individual who has rights and responsibilities. A corporation’s “birth certificate” is the legal form that is filed where it is created, or incorporated. It must have a legal name, just like a person.
A corporation is separate from its owners. It’s responsible for its own debts. The bank can’t come after the stockholders if it goes bankrupt. It issues ownership share to persons who invest money in the business. These ownership shares are documented by stock certificates, which state the name of the owner and how many shares are owned. The corporation has to keep a register, or list, of how many shares everyone owns. Owners are called stockholders because they own shares of stock. One share of stock is one unit of ownership; how much one share is worth depends on the total number of shares that the business issues. the more shares a business issues, the smaller the percentage of total owners’ equity each share represents.
Stock shares come in different classes of stock. Preferred stockholders are promised a certain amount of cash dividends each year. Common stockholders have the most risk. If a corporation ends up in financial trouble, it’s required to pay off its liabilities first. If any money is left over, then that money goes first to the preferred stockholders. If anything is left over after that, then that money is distributed to the common stockholders.
The word “corporation” derives from corpus, the Latin word for body, or a “body of people”. By the time of Justinian (reigned 527–565), Roman law recognized a range of corporate entities under the names universitas, corpus or collegium. These included the state itself (the Populus Romanus), municipalities, and such private associations as sponsors of a religious cult, burial clubs, political groups, and guilds of craftsmen or traders. Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, and, in general, to perform legal acts through representatives. Private associations were granted designated privileges and liberties by the emperor.