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LSDefine
Simple English definitions for legal terms
corporation
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A quick definition of corporation:
A corporation is like a pretend person that can do things like a real person, such as borrowing money and suing people. It can also sell parts of itself to other people. Corporations are made by following rules set by the government, and they have to follow those rules to keep existing. Corporations can be sued if they do something wrong, but usually only the money the corporation has is at risk, not the money of the people who own the corporation. However, sometimes the people who own the corporation can be sued if they did something really bad. Corporations have to pay taxes on their money, and sometimes the people who own the corporation have to pay taxes on the money they get from the corporation. This can make it hard for corporations to make money, so some corporations are made in a different way to avoid paying extra taxes.
A more thorough explanation:
A corporation is a type of business entity that is treated as a single, fictional person. This means that it can do things like sue or be sued, lend or borrow money, and own property. It is created by filing articles of incorporation with the state government.
One of the main benefits of incorporating is limited personal liability. This means that the shareholders of the corporation are not personally responsible for the debts or liabilities of the corporation. For example, if a corporation is sued and loses, the shareholders will not be personally responsible for paying the damages.
However, there are some downsides to incorporating. One of these is double taxation. This means that the corporation's profits are taxed at the corporate level, and then again when they are distributed to the shareholders as dividends. This can result in a lower overall profit for the shareholders.
For example, let's say a corporation has 10 shareholders and makes a profit of $100,000. If the tax rate is 10%, the corporation will pay $10,000 in taxes, leaving $90,000 in profits. If this is distributed equally among the shareholders, each will receive $9,000. However, this $9,000 will be taxed again at the individual level, resulting in a lower overall profit for each shareholder.
There are different types of corporations, such as S-corporations, which are taxed differently and may be more beneficial for certain businesses.
Overall, a corporation is a legal entity that allows businesses to operate as a single person, with limited personal liability for the shareholders.