Introduction: What Is a Corporation?
If you’re starting a business or exploring legal structures, you might be wondering: What is a corporation?
A corporation is a legal entity that exists separately from its owners. It can enter contracts, sue or be sued, own assets, and conduct business under its own name. Corporations are widely used by businesses that plan to grow, raise capital, or limit personal liability.
Definition: What Is a Corporation?
A corporation is a formal business structure recognized as a separate legal entity from its owners, who are known as shareholders. It is formed by filing documents—typically Articles of Incorporation—with a state government.
Because the corporation is separate from its owners, shareholders are not personally liable for the corporation’s debts or legal issues.
Key Features of a Corporation
- Limited Liability Protection – Shareholders are not personally responsible for corporate debts.
- Separate Legal Entity – Can buy property, open bank accounts, and enter contracts.
- Perpetual Existence – Continues to exist even if ownership or management changes.
- Ability to Raise Capital – Corporations can issue stock to raise investment funds.
- Formal Structure – Must follow bylaws, hold meetings, and maintain records.
Types of Corporations
1. C Corporation (C-Corp)
The standard form of corporation. Profits are taxed at the corporate level, and again at the shareholder level when distributed as dividends (double taxation).
2. S Corporation (S-Corp)
Avoids double taxation by allowing profits to pass through to shareholders’ personal tax returns. Has strict IRS requirements and limits on the number of shareholders.
3. Nonprofit Corporation
Formed for charitable, religious, educational, or public service purposes. Exempt from paying federal income taxes.
Corporation vs Other Business Structures
| Structure | Legal Protection | Taxation | Ideal For |
|---|---|---|---|
| Sole Proprietor | ❌ No | Personal tax only | Freelancers, solo entrepreneurs |
| LLC | ✅ Yes | Pass-through or Corp | Small to medium businesses |
| Corporation | ✅ Yes | Corporate + dividends | Growth-oriented & investor-backed |
Pros and Cons of Forming a Corporation
Pros:
- Strong liability protection
- Easier to attract investors
- Perpetual lifespan
- Enhanced credibility
Cons:
- More paperwork and formalities
- Double taxation (C-Corp)
- Higher formation and maintenance costs
How to Form a Corporation
- Choose a business name
- File Articles of Incorporation with your state
- Appoint directors and issue stock
- Create corporate bylaws
- Apply for an EIN (Employer Identification Number)
- Open a business bank account
Start today at FormLLC.us
Final Thoughts: What Is a Corporation?
So, what is a corporation? It’s a separate legal entity that protects its owners, supports long-term growth, and offers opportunities to raise capital. While more complex than an LLC or sole proprietorship, a corporation can provide major advantages for the right kind of business.
