Corporations
A
Corporation is a legal entity separate
from the persons that form it. In British tradition
it is the term designating a body corporate, where it
can be either a corporation sole (an office held by
an individual natural person, which is a legal entity
separate from that person) or a corporation aggregate
(involving more persons). In American and, increasingly,
international usage, the term denotes a body corporate
formed to conduct business, and this meaning of corporation
is discussed in the remaining part of this entry (the
limited company in British usage).
Corporations exist as a product of corporate law, and
their rules balance the interests of the shareholders
that invest their capital and the employees who contribute
their labor. People work together in corporations to
produce value and generate income. In modern times,
corporations have become an increasingly dominant part
of economic life. People rely on corporations for employment,
for their goods and services, for the value of the pensions,
for economic growth and social development.
The defining feature of a corporation is its legal independence
from the people who create it. If a corporation fails,
shareholders normally only stand to lose their investment
(and possibly, in the unusual case where the shares
are not fully paid up, any amount outstanding on them
- and not even that in the case of a No liability company),
and employees will lose their jobs, but neither will
be further liable for debts that remain owing to the
corporation's creditors unless they have separately
varied this, e.g. with personal guarantees. This rule
is called limited liability, and it is why the names
of corporations in the UK end with "Ltd."
(or some variant like "Inc." and "plc").
Despite not being natural persons, corporations are
recognized by the law to have rights and responsibilities
like actual people. Corporations can exercise human
rights against real individuals and the state, and they
may be responsible for human rights violations. Just
as they are "born" into existence through
its members obtaining a certificate of incorporation,
they can "die" when they lose money into insolvency.
Corporations can even be convicted of criminal offences,
such as fraud and manslaughter. Five common characteristics
of the modern corporation, according to Harvard University
Professors Hansmann and Kraakman are...
- delegated
management, in other words, control of the company
placed in the hands of a board of directors
- limited
liability of the shareholders (so that when the company
is insolvent, they only owe the money that they subscribed
for in shares)
- investor
ownership, which Hansmann and Kraakman take to mean,
ownership by shareholders.
- separate
legal personality of the corporation (the right to
sue and be sued in its own name)
- transferrable
shares (usually on a listed exchange, such as the
London Stock Exchange, New York Stock Exchange or
Euronext in Paris)
Ownership
of a corporation is complicated by increasing social
and economic interdependence, as different stakeholders
compete to have a say in corporate affairs. In most
developed countries excluding the English speaking world,
company boards have representatives of both shareholders
and employees to "codetermine" company strategy.
Calls for increasing corporate social responsibility
are made by consumer, environmental and human rights
activists, and this has led to larger corporations drawing
up codes of conduct. In Australia, Canada, the United
Kingdom and the United States, corporate law has not
yet stepped into that field, and its building blocks
remain the study of corporate governance and corporate
finance.
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