Characteristics Of A Corporation Essay

926 words - 4 pages

There are many ways a corporation can be classified; however the best way to classify a corporation is by knowing the characteristics that makes a corporation. The unique characteristics of corporations are consist of limited liability of stockholders, free transferability of shares, perpetual existence, and centralized management. In relation to John Marshall who is the “chief justice in 1819 defined corporation as an artificial being, invisible, intangible, and existing only in contemplation of law in which the entity separate and distinct from its owners.” (Weygandt, 2005, p. 527) Since, “a corporation is a legal entity; it can sell shares of ownership which is referred to as stock without affecting its operations.” (Warren, 2002, p. 476) Also a “corporations are liable for their own contracts and debts in which share holders have limited liability.” (Cheeseman, 2004, p. 675) According to Henry Cheeseman “because corporation cannot be put in prison, the normal criminal penalty is the assessment of a fine, loss of a license, or other sanction.” (Cheeseman, 2004, p. 675) In the second characteristics free transferability of shares are “freely transferable by the shareholders by sale, assignment, pledge, or gift in which the shareholders agree among themselves on restrictions on the transfer of shares.” (Cheeseman, 2004, p. 675) The third characteristics is refer to as perpetual existence in which “corporations exist in perpetuity unless a specific duration is stated in the corporations articles of incorporation, or the corporations may be involuntarily terminated by the corporation’s creditors if an bankruptcy against the corporation is granted.” (Cheeseman, 2004, p. 675) The last characteristics of a corporation are centralized management in which “the board of directors makes a policy decisions concerning the operation of the corporation.” (Chesseman, 2004, p. 675) In accordance of Carl Warren, James Reeve, and Philip Fess the organizational structure of a corporation are consist of top down style in which “stockholders are first then board of directors, officers and lastly employees.” (Warren, 2002, p. 477)Advantages to Forming CorporationWhen a business forms, owners make a decision as to the type of entity the business is to become. The owners need to decide which form of business will best suit their needs. However, when forming a corporation certain advantages exist that sole proprietors and partnerships do not have. Some of these advantages include being a separate legal entity with limited liability, ease of generating capital and transferring ownership, lack of mutual agency and continuous existence to name a few.By having a business with a separate legal entity, the business is treated similar to how a person is treated. The business can enter into contracts, own property, sue and be sued in addition to hiring and firing employees. Since the...

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