Financial Dictionary -> General Finance -> Corporation

A corporation is business or organization that has been granted many of the legal rights that an actual person has, although they can be made up of several people or several groups of people. The company acts as a fictitious person, therefore giving the real people involved limited liability, should the business fail, fall in to major debt or go bankrupt. A business that has become a corporation is known to be 'incorporated'.

Corporations can issue both private and public stock, or they can choose to be non stock trading corporations. In those that issue stock, the most common hierarchy is to have an elected board of directors that make all major decisions, theoretically in favor of the shareholders.

In the United States there are three major classes of corporation, known as Close, C, and S.

Close corporations issue stock, but are limited to the amount of shareholders involved. This is normally nor more than thirty. Because this is such a small number, every shareholder is usually involved in the decision making, much like the board of directors or a larger corporation.

The most common type of corporation in the United States are C Corporations. These can have an unlimited amount of shareholders and usually have a board of directors at the top which make decisions in representation of the rest of the shareholders. C corporations pay tax both at the corporate level, and personal level, as the shareholders pay tax on their own dividends.

S corporations are C corporations that have special tax status with the IRS, which sees them only paying tax on their dividends and not on the corporation itself.

Different states have different benefits for corporations, with Nevada being a particular favorite for those wishing to protect their identity; as they do not require any ownership records attached to the corporation, which is considered a legal entity in itself.