Do you want to know the details of a company which is a corporation? You first need to know which companies are not the corporation. You have to understand first which of the following is not a characteristic of a corporation.
Many elements are not the characteristics of a corporation. Therefore, you have to identify those Characteristics to identify the right company for your business.
You have to address some of the crucial factors here when you want to know the characteristics of a corporation.
What Is A Corporation?
According to Investopedia,
“A corporation is a legal entity that is separate and distinct from its owners. Under the law, corporations possess many of the same rights and responsibilities as individuals. They can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes. A corporation’s distinguishing characteristic is limited liability.”
For a corporation, its shareholders profit from dividends and appreciation of stock. However, these shareholders are not personally liable for the debts of the company. Almost every large business you see around is a corporation. On the other hand, there are some corporations that do business with a separate name. For example, Alphabet Inc. operates its business as Google, while Meta operates its business as Facebook, Instagram, Threads, and WhatsApp.
A corporation is formed through incorporation by the owners of the business, who become shareholders as a result. The owners need to submit the articles of incorporation to the Secretary of the State to form a corporation. The common goal of the co-owners of the business is to share ownership of the business by the holding of stock shares. When the corporation makes a profit, it returns to its shareholders as per the percentage of shares.
Mostly, corporations are publicly traded. In the United States, corporations need to follow state laws during creation and to follow regulations. The US Securities and Exchange Commission regulates the federal law for corporations in the United States. Hence, it is a complex process to turn a private corporation into a public corporation. The corporation needs to disclose its financial information fully to the government and potential shareholders.
How Does A Corporation Operate?
In a corporation, shareholders receive one vote per share at the time of the election of the board of directors. They elect the board of directors mostly at annual meetings. The board of directors is important as it hires and looks over the senior management of the corporation on a regular basis. Furthermore, the board of directors is also responsible for executing the business plan of the corporation. The members of the board are not liable for the corporation’s debts. However, they have the responsibility of running the corporation, as they owe a duty of care. If they neglect this duty, they might incur personal liabilities.
Corporations have a much greater capacity to raise capital as they possess the power to sell the shares to their third parties and investors.
The corporations are not dependent wholly on Stockholders as they can increase their access to resources and capital.
They can increase their revenue by improving their business with the help of their employees and co-workers. When the sales figure of a company grows, the earning capacity of that organization automatically increases.
3. Cash Dividends
Which of the following is not a characteristic of a corporation you are searching for, right? A company that is not a corporation will not issue dividends to its shareholders.
Dividends are not the expenditure part of any company or corporation.
You can say that dividends are the rights of the shareholders that corporations distribute among them in the order of their investment ratio.
Due to this fact, the company cannot deduct the cash dividend payout from corporate expenses. In simple words, the dividends are the fundamental rights of the shareholders that you cannot neglect at your end.
4. Double Taxation
In the characteristic of a corporation double taxation is a drawback of operating the business.
The main reason behind this issue is a company has first to file their corporate income tax, and after that, they can pay the dividend after paying the taxes to the government.
The double taxation policy reduces the earning capacity of the shareholders as they also have to pay taxes to the government after receiving the dividends from the company. Thus double taxation reduces the chances of their income growth.
In Corporation, it is not very hard to transfer the ownership rights. This is one of the fundamental characteristics of a corporation that you must not avoid.
On the contrary, corporations allow transferring shares from one shareholder to another.
It is the reason why banks, venture capitalists, and investors prefer to make their investments in return for the stock ownership of your venture.
Few Prominent Corporation Examples
Certain prominent corporation examples can clear your doubts regarding the identity of a corporate company. Some of the best examples of the corporation are as follows:-
- Tata Motors.
- Colgate Palmolive.
- Hindustan Uniliver.
These are some prominent examples of a corporation that you need to clarify at your end. Do not mix up the concepts while you know about the Corporation.
A corporation is entitled to sell 100 authorized shares at its incorporation. The number can increase or decrease depending on the interest of the company’s shareholders.
You cannot negate these factors at the time of the incorporation. However, you have to admit certain core factors while heading a corporation.
Final Take Away
Which of the following is not a characteristic of a corporation is explained clearly in my article. If you still have some doubts about it, you can feel free to share your thoughts.
Here, I have tried to explain all the details you need to know about a corporation.
If you still have some doubts about it, you can make your comments in the comment box to let us know your thoughts. But, of course, you have to understand the facts before making your choices in the correct direction.
Frequently Asked Questions!! (FAQs)
Ans. A corporation has five characteristics: limited liability, ownership rights are easy to transfer, continuing lifespan, and double taxation. You have to understand these factors before judging a corporation.
Ans. A non-corporate entity is a legal entity that does not go through the incorporation process. However, the shareholders have to shoulder specific responsibilities to develop the proper business plan for the better growth of the organization.
Ans. There are three essential characteristics of a close corporation. Some of them are as follows:
Close corporations do not require audited financial statements.
It is a legal entity.
Annual General Meetings are not an essential part of the corporations as they are held ad hoc.