A CORPORATION is a company or group of people authorized to act as a single entity (legally a person ) and recognized as such in law. Early incorporated entities were established by charter (i.e. by an _ad hoc_ act granted by a monarch or passed by a parliament or legislature). Most jurisdictions now allow the creation of new corporations through registration .
Corporations come in many different types but are usually divided by the law of the jurisdiction where they are chartered into two kinds: by whether they can issue stock or not, or by whether they make profit or not.
Where local law distinguishes corporations by ability to issue stock, corporations allowed to do so are referred to as "stock corporations", ownership of the corporation is through stock, and owners of stock are referred to as "stockholders" or "shareholders". Corporations not allowed to issue stock are referred to as "non-stock" corporations; those who are considered the owners of the corporation are those who have obtained membership in the corporation, and are referred to as a "member" of the corporation.
Corporations chartered in regions where they are distinguished by whether they are allowed to be for profit or not are referred to as "for profit" and "not-for-profit" corporations, respectively.
There is some overlap between stock/non-stock and for profit/not-for-profit in that not-for-profit corporations are always non-stock as well. A for profit corporation is almost always a stock corporation, but some for profit corporations may choose to be non-stock. To simplify the explanation, whenever "Stockholder " or "Shareholder" is used in the rest of this article to refer to a stock corporation, it is presumed to mean the same as "member" for a non-profit corporation or for profit, non-stock corporation.
Registered corporations have legal personality and are owned by shareholders whose liability is limited to their investment. Shareholders do not typically actively manage a corporation; shareholders instead elect or appoint a board of directors to control the corporation in a fiduciary capacity.
In American English , the word _corporation_ is most often used to describe large business corporations . In British English and in the Commonwealth countries , the term _company_ is more widely used to describe the same sort of entity while the word _corporation_ encompasses all incorporated entities. In American English, the word _company_ can include entities such as partnerships that would not be referred to as companies in British English as they are not a separate legal entity .
Despite not being individual human beings, corporations, as far as the law is concerned, are legal persons , and have many of the same rights and responsibilities as natural persons do. Corporations can exercise human rights against real individuals and the state, and they can themselves be responsible for human rights violations. Corporations can be "dissolved" either by statutory operation, order of court, or voluntary action on the part of shareholders. Insolvency may result in a form of corporate failure, when creditors force the liquidation and dissolution of the corporation under court order, but it most often results in a restructuring of corporate holdings. Corporations can even be convicted of criminal offenses, such as fraud and manslaughter . However, corporations are not considered living entities in the way that humans are.
Late in the 19th century, a new form of company having the limited liability protections of a corporation, and the more favorable tax treatment of either a sole proprietorship or partnership was developed. While not a corporation, this new type of entity became very attractive as an alternative for corporations not needing to issue stock. In Germany, the organization was referred to as _ Gesellschaft mit beschränkter Haftung _ or _GmbH_. In the last quarter of the 20th Century this new form of non-corporate organization became available in the United States and other countries, and was known as the _limited liability company _ or _LLC_. Since the GmbH and LLC forms of organization are technically not corporations (even though they have many of the features of one) they will not be discussed in this article.
* 1 History
* 1.1 Mercantilism
* 1.2 Modern company law
* 2 Ownership and control
* 2.1 Formation * 2.2 Naming
* 3 See also * 4 Notes * 5 Further reading * 6 External links
See also: List of oldest companies 1/8 share of the Stora Kopparberg mine, dated June 16, 1288.
The word "corporation" derives from _corpus_, the Latin word for body, or a "body of people". By the time of Justinian (reigned 527–565), Roman law recognized a range of corporate entities under the names _universitas_, _corpus_ or _collegium_. These included the state itself (the _populus Romanus_), municipalities, and such private associations as sponsors of a religious cult , burial clubs , political groups, and guilds of craftsmen or traders. Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, and, in general, to perform legal acts through representatives. Private associations were granted designated privileges and liberties by the emperor.
Entities which carried on business and were the subjects of legal rights were found in ancient Rome , and the Maurya Empire in ancient India. In medieval Europe, churches became incorporated, as did local governments, such as the Pope and the City of London Corporation . The point was that the incorporation would survive longer than the lives of any particular member, existing in perpetuity. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun , Sweden , obtained a charter from King Magnus Eriksson in 1347.
In medieval times, traders would do business through common law constructs, such as partnerships . Whenever people acted together with a view to profit, the law deemed that a partnership arose. Early guilds and livery companies were also often involved in the regulation of competition between traders.
Many European nations chartered corporations to lead colonial ventures, such as the Dutch East India Company (VOC) or the Hudson\'s Bay Company . These chartered companies became the progenitors of the modern corporation. Acting under a charter sanctioned by the Dutch government, the Dutch East India Company defeated Portuguese forces and established itself in the Moluccan Islands in order to profit from the European demand for spices . Investors in the VOC were issued paper certificates as proof of share ownership, and were able to trade their shares on the original Amsterdam Stock Exchange . Shareholders are also explicitly granted limited liability in the company's royal charter.
In England, the government created corporations under a royal charter or an Act of Parliament with the grant of a monopoly over a specified territory. The best known example, established in 1600, was the East India Company of London . Queen Elizabeth I granted it the exclusive right to trade with all countries to the east of the Cape of Good Hope . Some corporations at this time would act on the government's behalf, bringing in revenue from its exploits abroad. Subsequently, the Company became increasingly integrated with English and later British military and colonial policy, just as most corporations were essentially dependent on the Royal Navy 's ability to control trade routes.
Labeled by both contemporaries and historians as "the grandest society of merchants in the universe", the English East India Company would come to symbolize the dazzlingly rich potential of the corporation, as well as new methods of business that could be both brutal and exploitative. On 31 December 1600, Queen Elizabeth I granted the company a 15-year monopoly on trade to and from the East Indies and Africa . By 1711, shareholders in the East India Company were earning a return on their investment of almost 150 per cent. Subsequent stock offerings demonstrated just how lucrative the Company had become. Its first stock offering in 1713–1716 raised £418,000, its second in 1717–1722 raised £1.6 million. Chart of the South Sea Company 's stock prices. The rapid inflation of the stock value in the 1710s led to the Bubble Act 1720 , which restricted the establishment of companies without a royal charter .
A similar chartered company , the South Sea Company , was established in 1711 to trade in the Spanish South American colonies, but met with less success. The South Sea Company's monopoly rights were supposedly backed by the Treaty of Utrecht , signed in 1713 as a settlement following the War of the Spanish Succession , which gave Great Britain an _asiento _ to trade in the region for thirty years. In fact the Spanish remained hostile and let only one ship a year enter. Unaware of the problems, investors in Britain, enticed by extravagant promises of profit from company promoters bought thousands of shares. By 1717, the South Sea Company was so wealthy (still having done no real business) that it assumed the public debt of the British government. This accelerated the inflation of the share price further, as did the Bubble Act 1720 , which (possibly with the motive of protecting the South Sea Company from competition) prohibited the establishment of any companies without a Royal Charter. The share price rose so rapidly that people began buying shares merely in order to sell them at a higher price, which in turn led to higher share prices. This was the first speculative bubble the country had seen, but by the end of 1720, the bubble had "burst", and the share price sank from £1000 to under £100. As bankruptcies and recriminations ricocheted through government and high society, the mood against corporations, and errant directors, was bitter.
In the late 18th century, Stewart Kyd , the author of the first treatise on corporate law in English, defined a corporation as:
a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence. — A Treatise on the Law of Corporations, Stewart Kyd (1793–1794)
MODERN COMPANY LAW
Due to the late 18th century abandonment of mercantilist economic theory and the rise of classical liberalism and laissez-faire economic theory due to a revolution in economics led by Adam Smith and other economists, corporations transitioned from being government or guild affiliated entities to being public and private economic entities free of governmental directions.
Adam Smith wrote in his 1776 work _ The Wealth of Nations _ that mass corporate activity could not match private entrepreneurship, because people in charge of others' money would not exercise as much care as they would with their own.
_ "Jack and the Giant Joint-Stock", a cartoon in Town Talk_ (1858) satirizing the 'monster' joint-stock economy that came into being after the Joint Stock Companies Act 1844 .
The British Bubble Act 1720's prohibition on establishing companies remained in force until its repeal in 1825. By this point, the Industrial Revolution had gathered pace, pressing for legal change to facilitate business activity. The repeal was the beginning of a gradual lifting on restrictions, though business ventures (such as those chronicled by Charles Dickens in _ Martin Chuzzlewit _) under primitive companies legislation were often scams. Without cohesive regulation, proverbial operations like the "Anglo-Bengalee Disinterested Loan and Life Assurance Company" were undercapitalised ventures promising no hope of success except for richly paid promoters.
The process of incorporation was possible only through a royal charter or a private act and was limited, owing to Parliament's jealous protection of the privileges and advantages thereby granted. As a result, many businesses came to be operated as unincorporated associations with possibly thousands of members. Any consequent litigation had to be carried out in the joint names of all the members and was almost impossibly cumbersome. Though Parliament would sometimes grant a private act to allow an individual to represent the whole in legal proceedings, this was a narrow and necessarily costly expedient, allowed only to established companies.
Then, in 1843, William Gladstone became the chairman of a Parliamentary Committee on Joint Stock Companies, which led to the Joint Stock Companies Act 1844 , regarded as the first modern piece of company law. The Act created the Registrar of Joint Stock Companies , empowered to register companies by a two-stage process. The first, provisional, stage cost £5 and did not confer corporate status, which arose after completing the second stage for another £5. For the first time in history, it was possible for ordinary people through a simple registration procedure to incorporate. The advantage of establishing a company as a separate legal person was mainly administrative, as a unified entity under which the rights and duties of all investors and managers could be channeled.
However, there was still no limited liability and company members could still be held responsible for unlimited losses by the company. The next, crucial development, then, was the Limited Liability Act 1855 , passed at the behest of the then Vice President of the Board of Trade, Mr. Robert Lowe . This allowed investors to limit their liability in the event of business failure to the amount they invested in the company – shareholders were still liable directly to creditors , but just for the unpaid portion of their shares . (The principle that shareholders are liable to the corporation had been introduced in the Joint Stock Companies Act 1844).
The 1855 Act allowed limited liability to companies of more than 25 members (shareholders). Insurance companies were excluded from the act, though it was standard practice for insurance contracts to exclude action against individual members. Limited liability for insurance companies was allowed by the Companies Act 1862 .
This prompted the English periodical _ The Economist _ to write in 1855 that "never, perhaps, was a change so vehemently and generally demanded, of which the importance was so much overrated. " The major error of this judgment was recognised by the same magazine more than 70 years later, when it claimed that, "he economic historian of the future. . . may be inclined to assign to the nameless inventor of the principle of limited liability, as applied to trading corporations, a place of honour with Watt and Stephenson , and other pioneers of the Industrial Revolution. "
These two features – a simple registration procedure and limited liability – were subsequently codified into the landmark 1856 Joint Stock Companies Act . This was subsequently consolidated with a number of other statutes in the Companies Act 1862, which remained in force for the rest of the century, up to and including the time of the decision in _Salomon v A Salomon ">_ Lindley LJ was the leading expert on partnerships and company law in the Salomon v. Salomon & Co. _ case. The landmark case confirmed the distinct corporate identity of the company.
The last significant development in the history of companies was the decision of the House of Lords in _Salomon v. Salomon ">
Generally, a corporation files articles of incorporation with the government, laying out the general nature of the corporation, the amount of stock it is authorized to issue, and the names and addresses of directors. Once the articles are approved, the corporation's directors meet to create bylaws that govern the internal functions of the corporation, such as meeting procedures and officer positions.
The law of the jurisdiction in which a corporation operates will regulate most of its internal activities, as well as its finances. If a corporation operates outside its home state, it is often required to register with other governments as a foreign corporation , and is almost always subject to laws of its host state pertaining to employment , crimes , contracts , civil actions , and the like.
Corporations generally have a distinct name. Historically, some corporations were named after their membership: for instance, "The President and Fellows of Harvard College". Nowadays, corporations in most jurisdictions have a distinct name that does not need to make reference to their membership. In Canada, this possibility is taken to its logical extreme: many smaller Canadian corporations have no names at all, merely numbers based on a registration number (for example, "12345678 Ontario Limited"), which is assigned by the provincial or territorial government where the corporation incorporates.
In most countries, corporate names include a term or an abbreviation that denotes the corporate status of the entity (for example, "Incorporated" or "Inc." in the United States) or the limited liability of its members (for example, "Limited" or "Ltd."). These terms vary by jurisdiction and language. In some jurisdictions, they are mandatory, and in others they are not. Their use puts everybody on constructive notice that they are dealing with an entity whose liability is limited: one can only collect from whatever assets the entity still controls when one obtains a judgment against it.
Some jurisdictions do not allow the use of the word "COMPANY" alone to denote corporate status, since the word "company " may refer to a partnership or some other form of collective ownership (in the United States it can be used by a sole proprietorship but this is not generally the case elsewhere).
* Anti-corporate activism * Blocker corporation * Community interest company * Cooperative * Corporate crime * Corporate governance * Corporate haven * Corporate welfare * Corporation sole * Corporatism * Corporatization * Decentralized autonomous organization * Evil corporation * Good standing * Government-owned corporation * History of competition law * Incorporation (business) * Limited liability company * Megacorporation * Multinational corporation * Nationalization * Nonprofit corporation * Organizational culture * Preferred stock * Privatization * Professional corporation (PC or P.C.) * Public limited company (PLC) * Shelf corporation * Small business * South Sea Company * Tulip mania * United States antitrust law * Unlimited company * Unlimited liability corporation
* ^ "Types Of Corporations Incorporate A Business". _www.corpnet.com_. Retrieved 2017-06-10. * ^ Pettet, B. G. (2005). _ Company Law_. Pearson Education. p. 151. Reading the above, makes it possible to forget that the shareholders are the _owners_ of the company. * ^ Courtney, Thomas B. (2002). _The Law of Private Companies_ (2nd ed.). Bloomsbury Professional. 4.001. As a corporation, or body corporate, a private company is regarded in law as having a separate legal personality from its shareholders (owners) and directors (managers). * ^ corporation. CollinsDictionary.com. Collins English Dictionary – Complete ">(PDF). Oxford University Press. p. 1. ISBN 978-0-19-928983-7 . Retrieved 2 June 2012. * ^ e.g. South African Constitution Sect.8, especially Art.(4) * ^ Phillip I. Blumberg, The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality, (1993) discusses the controversial nature of additional rights being granted to corporations. * ^ See, for example, the Business Corporations Act (B.C.) CHAPTER 57, Part 10 * ^ e.g. Corporate Manslaughter and Corporate Homicide Act 2007 * ^ Harold Joseph Berman, _Law and Revolution_ (vol. 1)_: The Formation of the Western Legal Tradition_, Cambridge: Harvard University Press, 1983, pp. 215–16. ISBN 0674517768 * ^ Vikramaditya S. Khanna (2005). _The Economic History of the Corporate Form in Ancient India._ University of Michigan . * ^ Om Prakash, _European Commercial Enterprise in Pre-Colonial India_ (Cambridge University Press, Cambridge 1998). * ^ John Keay, _The Honorable Company: A History of the English East India Company_ (MacMillan, New York 1991). * ^ Haynes, Gerard Cohen-Vrignaud, Stephanie Metz, Jody Dunville, Shannon Heath, Julia P. McLeod, Kat Powell, Brent Robida, John Stromski, Brandon. "British East India Company". Retrieved 19 January 2017. * ^ _Ibid._ at p. 113 * ^ " Adam Smith Laissez-Faire". _political-economy.com_. Retrieved 2017-06-10. * ^ A Smith, _An Inquiry into the Nature and Causes of the Wealth of Nations _ (1776) Book V, ch 1, para 107 * ^ See Bubble Companies, etc. Act 1825 , 6 Geo 4, c 91 * ^ See C Dickens , _ Martin Chuzzlewit _ (1843) ch 27 * ^ _Report of the Parliamentary Committee on Joint Stock Companies_ (1844) in _British Parliamentary Papers_, vol. VII * ^ Paul Lyndon Davies (2010). _Introduction to Company Law_. Oxford University Press. p. 1. * ^ _Re Sea Fire and Life Assurance Co., Greenwood's Case_ (1854) 3 De GM&G 459 * ^ Graeme G. Acheson ">(PDF). Archived from the original (PDF) on 2012-01-13. Retrieved 2011-11-16. and "Archived copy" (PDF). Archived from the original (PDF) on 2012-01-11. Retrieved 2011-11-16. . * ^ _Economist_, December 18, 1926, at 1053, as quoted in Mahoney, _supra_, at 875. * ^ _Salomon v A Salomon Cunningham, Lawrence A. (2010), _Corporations and Other Business Organizations: Cases, Materials, Problems_ (Seventh ed.), LexisNexis, pp. 228–31, 241, ISBN 978-1-4224-7659-8 * ^ The Law of Business Organizations, Cengage Learning * ^ Besley, Scott; Brigham, Eugene (2008). _Principles of Finance_ (4th ed.). Cengage Learning. p. 105. ISBN 9780324655889 . A credit union is a depository institution that is owned by its depositors... * ^ " Company & Commercial – Netherlands: In a nutshell – one-tier boards". International Law Office. 10 April 2012. * ^ The U.S. state of California is an example of a jurisdiction that does not require corporations to indicate corporate status in their names, except for close corporations. The drafters of the 1977 revision of the California General Corporation Law considered the possibility of forcing all California corporations to have a name indicating corporate status, but decided against it because of the huge number of corporations that would have had to change their names, and the lack of any evidence that anyone had been harmed in California by entities whose corporate status was not immediately apparent from their names. However, the 1977 drafters were able to impose the current disclosure requirement for close corporations. See Harold Marsh, Jr., R. Roy Finkle, Larry W. Sonsini, and Ann Yvonne Walker, _Marsh's California Corporation Law_, 4th ed., vol. 1 (New York: Aspen Publishers, 2004), 5–15 — 5–16.
* A Comparative Bibliography: Regulatory Competition on Corporate Law * Blumberg, Phillip I., _The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality_, (1993) * Bromberg, Alan R. _Crane and Bromberg on Partnership_. 1968. * Brown, Bruce. _The History of the Corporation_ (2003) * Cadman, John William. _The Corporation in New Jersey: Business and Politics,_ , (1949) * Conard, Alfred F. _Corporations in Perspective_. 1976. * Cooke, C. A., _Corporation, Trust and Company: A Legal History_, (1950) * Davis, John P. _Corporations_ (1904) * Davis, Joseph S. _Essays in the Earlier History of American Corporations_ (1917) * Dignam, A and Lowry, J (2006) Company Law, Oxford University Press ISBN 978-0-19-928936-3 * Dodd, Edwin Merrick. _American Business Corporations until 1860, With Special Reference to Massachusetts_, (1954) * DuBois, A.B. _The English Business Company after the Bubble Act,_ , (1938) * Freedman, Charles. _Joint-stock Enterprise in France, : From Privileged Company to Modern Corporation_ (1979) * Freund, Ernst . MCMaster.ca, _The Legal Nature of the Corporation_ (1897) * Hallis, Frederick. _Corporate Personality: A Study in Jurisprudence_ (1930) * Hessen, Robert . _In Defense of the Corporation_. Hoover Institute. 1979. * Hunt, Bishop. _The Development of the Business Corporation in England_ (1936) * Klein and Coffee. _Business Organization and Finance: Legal and Economic Principles_. Foundation. 2002. * Majumdar, Ramesh Chandra. _Corporate Life in Ancient India_, (1920) * Means, Robert Charles. _Underdevelopment and the Development of Law: Corporations and Corporation Law in Nineteenth-century Colombia_, (1980) * Micklethwait, John and Wooldridge, Adrian. _The Company: a Short History of a Revolutionary Idea_. New York: Modern Library. 2003. * Owen, Thomas. _The Corporation under Russian Law, : A Study in Tsarist Economic Policy_ (1991) * Rungta, Radhe Shyam. _The Rise of the Business Corporation in India, 1851–1900_, (1970) * Scott, W. R. _Constitution and Finance of English, Scottish and Irish Joint- Stock Companies to 1720_ (1912) * Sobel, Robert . _The Age of Giant Corporations: a Microeconomic History of American Business_. (1984) * Barnet, Richard; Muller, Ronald E. (1974). _Global Reach: The Power of the Multinational Corporation_. New York: Simon & Schuster. * PG Mahoney, ' Contract or Concession? An Essay on the History of Corporate Law' (2000) 34 Ga. Law Review 873 * PI Blumberg, _The Multinational Challenge to Corporation Law_ (1993) * PL Davies and LCB Gower, _Principles of Modern Com