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Corporations are the most dominant form of business organization in the United States, generating more than 85 percent of the country’s gross business receipts. Corporations range in size from one owner to thousands of owners. Owners of corporations are called shareholders. A corporation is a separate legal entity for most purposes. Corporations are treated, in effect, as artificial persons created by the state and can sue or be sued in their own names, enter into and enforce contracts, hold title to and transfer property, and be found civilly and criminally liable for violations of law. Corporations cannot be put in prison, so the normal criminal penalty is the assessment of a fine, loss of a license, or other sanction. Corporations have the following unique characteristics:
• Limited liability of shareholders. As separate legal entities, corporations are liable for their own debts. The shareholders have liability that only extends to their investments.
• Free transferability of shares. Corporate shares are freely transferable by the shareholder, by sale, assignment, pledge, or gift, unless they are issued pursuant to certain exemptions from securities registration.
• Perpetual existence. Corporations exist in perpetuity unless a specific duration is stated in the corporation’s articles of incorporation. The existence of a corporation can be voluntarily terminated by the shareholders. Corporations may be involuntarily terminated by creditors if an involuntary petition for bankruptcy is granted. But, the death, insanity, or bankruptcy of a shareholder, director, or officer doesn’t affect its existence.
• Centralized management. The board of directors makes policy decisions concerning the operation of the corporation. Members of the board of directors are elected by the shareholders. The directors then appoint corporate officers to run the day-to-day operations. Together, the directors and officers form the corporate “management.”
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