Essay on Corporation
Introduction
A corporation is one of the most significant and complex forms of business organization. Unlike
sole proprietorships or partnerships, a corporation is considered a separate legal entity created
under law, distinct from its owners. This means it has rights and obligations independent of the
individuals who established it. Corporations can enter into contracts, own property, sue or be
sued, and exist beyond the lifespan of their founders. Because of its structure and ability to raise
large amounts of capital, the corporate form of business has become the foundation of modern
economies worldwide. This essay discusses the nature of corporations, their characteristics,
types, advantages and disadvantages, and their overall importance in society and the global
economy.
Nature and Concept of a Corporation
A corporation is created through legal registration under government authority, typically by
filing articles of incorporation or a similar document. Once established, it becomes a "juridical
person" recognized by law. This separate personality allows the corporation to function
independently from its shareholders. For example, if a corporation incurs debt, creditors cannot
directly claim the personal assets of shareholders; they can only go after the assets of the
corporation itself.
The concept of the corporation is deeply tied to the idea of limited liability, where investors’
risks are limited to the amount they put into the company. This structure encourages
entrepreneurship and investment, since individuals can participate in large-scale business
ventures without risking their entire personal wealth.
Essential Characteristics of a Corporation
Corporations possess distinct features that separate them from other business forms:
1. Separate Legal Personality – The corporation exists independently from its owners. It
can act in its own name.
2. Limited Liability – Shareholders are only liable up to the value of their shares.
3. Perpetual Existence – A corporation continues to exist regardless of changes in
ownership, death, or withdrawal of shareholders.
4. Transferability of Shares – Ownership can be transferred easily by selling shares,
without affecting the continuity of the business.
5. Centralized Management – The corporation is managed by a board of directors elected
by shareholders. Daily operations are often handled by officers and managers appointed
by the board.
6. Ability to Raise Capital – Corporations can issue shares or bonds to generate funds,
making them capable of financing large projects.
Types of Corporations
Corporations can be classified in several ways depending on their purpose, ownership, and scope
of activities:
1. Stock vs. Non-Stock Corporations
o Stock corporations are established to generate profit and distribute dividends to
shareholders.
o Non-stock corporations are usually formed for charitable, educational, cultural, or
religious purposes and do not distribute profits to members.
2. Domestic vs. Foreign Corporations
o A domestic corporation operates in the country where it was incorporated.
o A foreign corporation is one that was created in another jurisdiction but is
authorized to do business elsewhere.
3. Close vs. Publicly Held Corporations
o Close corporations have a small number of shareholders, often family members
or close associates. Shares are not traded publicly.
o Publicly held corporations have shares listed on stock exchanges and are owned
by a wide range of investors.
4. For-Profit vs. Non-Profit Corporations
o For-profit corporations aim to generate financial returns for their owners.
o Non-profit corporations reinvest surplus funds into their mission rather than
distributing them to shareholders.
Advantages of a Corporation
Corporations offer numerous benefits that make them attractive compared to other business
forms:
1. Limited Liability Protection – Owners’ personal assets are protected from corporate
debts.
2. Ease of Raising Capital – Issuing stocks and bonds makes it easier to gather large funds.
3. Perpetual Existence – Corporations outlive their founders, ensuring continuity and
stability.
4. Transferability of Ownership – Shares can be sold, allowing flexibility for investors to
exit without disrupting the business.
5. Professional Management – Corporations usually employ experts and managers,
leading to more efficient and effective decision-making.
6. Large-Scale Operations – Because of their resources, corporations can engage in
massive projects that smaller businesses cannot undertake.
Disadvantages of a Corporation
Despite their strengths, corporations also have drawbacks:
1. Complex and Costly Formation – Legal procedures, government fees, and regulatory
requirements make setting up a corporation more complicated than other business types.
2. Double Taxation – In many countries, corporations are taxed on their income, and
shareholders are also taxed on dividends they receive.
3. Less Personal Control – Shareholders typically have limited control, with decision-
making concentrated in the board of directors and management.
4. Compliance Burden – Corporations face strict reporting, auditing, and regulatory
requirements.
5. Potential for Mismanagement – The separation of ownership and management
sometimes leads to conflicts of interest or unethical practices.
The Role of Corporations in Society
Corporations are often described as the engines of economic growth. They generate employment,
produce goods and services, pay taxes, and contribute to the development of infrastructure.
Multinational corporations, in particular, connect economies worldwide by facilitating
international trade and investment.
However, corporations also have social responsibilities. Beyond generating profit, they are
expected to operate ethically, respect labor rights, protect the environment, and contribute to
social development. The concept of corporate social responsibility (CSR) emphasizes that
corporations should balance profit-making with positive contributions to society.
Corporations in the Modern Economy
In today’s globalized world, corporations have become more powerful than ever. Some
multinational corporations have revenues exceeding the gross domestic product (GDP) of
smaller nations. Technology corporations like Apple, Microsoft, and Google shape the digital
economy, while industrial giants like Toyota and Samsung drive global manufacturing.
Yet, corporations also face criticism. Issues such as environmental degradation, monopolistic
practices, and exploitation of workers highlight the darker side of corporate power. Governments
and international bodies therefore regulate corporations to ensure fair competition, consumer
protection, and sustainable practices.
Conclusion
The corporation is a cornerstone of the modern economic system. Its unique characteristics—
such as limited liability, perpetual existence, and the ability to raise large amounts of capital—
make it a powerful and flexible business structure. While corporations bring many advantages,
they also come with responsibilities and potential risks that must be managed carefully.
Ultimately, corporations are more than just profit-generating entities. They play a vital role in
shaping economies, societies, and even cultures. For this reason, understanding how corporations
work, their benefits, and their challenges is essential not only for business students and
professionals but also for ordinary citizens who interact with corporations daily. As the world
continues to change, corporations must evolve in ways that promote not just financial success but
also ethical responsibility, sustainability, and inclusive growth.
