What Is a Corporation And How Does It Work

A corporation is an artificial person having separate legal identity, which is allowed by a particular state or country to conduct its business within the boundaries of a state or country. Just like a person, corporation has legal rights and liabilities and it can be held accountable for its actions in the court of law. The corporations are divided into two broader types profit or not for profit organisations. The objective of for profit corporations is to earn money while the not for profit corporations works solely for betterment of society.


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    In order to form a corporation, its founders have to decide the course and territory of business they wish to work in.

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    After they have decided that, they must contact their state department to obtain the information for registering the corporation.

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    It is important that they should provide all the documents and information to register their corporation.

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    Now is the right time to go for Initial Public Offering (IPO). Here, the management of the corporation decides the share price of its shares, total number of shares they wish to offer and choose an undertaker.

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    The undertaker is usually a bank or any other lending institution that confirms that it will buy all the remaining shares of the corporation.

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    Generally, a corporation is too big to be handled by a single person and thus it is owned by a large number of peoples known as shareholders of the company. It does not matter whether a person has small amount of shares or large, each one of them is the owner with difference being only in the extent of ownership.

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    The shareholders of a corporation use their voting rights to elect board of directors of the company who then take the responsibility of managing the corporation. The board of directors sets goals and objectives and formulate strategies to ensure the accomplishment of these goals.

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    The task of the shareholders is to elect directors only and they do not have responsibility towards the operations of the company.

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    The board of directors then hire the management people who recruit other working staff to fill the hierarchal positions.

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    It is mandatory that the board of directors arrange the Annual General Meeting (AGM) of the shareholders.

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    The shareholders can also vote against the directors if they wish to change in future.

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