A General Corporation, often referred to as a “C Corporation” in the U.S., is a legal entity that can engage in a wide array of business activities and whose ownership is available to the general public through the issuance of shares. This type of corporation is distinguished by its capacity to have an unlimited number of shareholders and provide limited liability protection to its owners.
Characteristics of a General Corporation
Limited Liability
Shareholders of a general corporation have limited liability, meaning their personal assets are protected from the debts and liabilities of the corporation.
Public Ownership
A general corporation can issue stocks and bonds, allowing it to raise capital by selling shares to the public. This public ownership facilitates easier transferability of shares.
Perpetual Existence
Unlike partnerships or sole proprietorships, a general corporation has perpetual existence. This means that the death or withdrawal of shareholders does not affect the corporation’s continuity.
Double Taxation
General corporations are subject to corporate income tax on their earnings, and shareholders are taxed again on dividends, leading to double taxation.
Types of Corporations
C Corporation
The most common type, suitable for businesses looking to attract outside investment and go public.
S Corporation
A special type of corporation created through an IRS tax election. Unlike C Corporations, they are not subject to double taxation.
B Corporation
Also known as Benefit Corporations, they have a dual purpose: to generate profit and to produce a positive impact on society and the environment.
Governance Structure
Board of Directors
Elected by shareholders, the board oversees the major decisions and policies of the corporation. They are responsible for appointing corporate officers and ensuring the company meets its fiduciary duties.
Corporate Officers
Appointed by the board of directors, officers like the CEO, CFO, and COO manage daily operations and implement the policies laid out by the board.
Shareholders
Owners of the corporation’s shares, shareholders have the right to vote on major corporate decisions, such as mergers and board elections.
Historical Context
The concept of a general corporation dates back to the early 17th century with the establishment of entities like the Dutch East India Company. The modern corporation evolved during the Industrial Revolution, providing a structure for raising vast amounts of capital from a large number of investors.
Applicability and Use Cases
General corporations are suitable for businesses aiming to grow rapidly and attract public investment. They are prevalent in sectors like technology, manufacturing, and finance, where substantial capital and a broad shareholder base are essential.
Comparison with Other Business Structures
- Sole Proprietorships: Owned and managed by one person, offering simplicity but lacking liability protection.
- Partnerships: Owned by two or more individuals, sharing profits and responsibilities but also bearing unlimited liability.
- LLCs (Limited Liability Companies): Offer limited liability protection and flexible tax options but lack the ability to raise public capital like a general corporation.
Related Terms
- Shares: Units of ownership in a corporation.
- Dividends: Payments made by a corporation to its shareholders from profits.
- Articles of Incorporation: Document filed to create a corporation, detailing its purpose and structure.
- Bylaws: Rules governing the internal management of a corporation.
FAQs
What are the main advantages of a general corporation?
What are the disadvantages of a general corporation?
How does one form a general corporation?
References
- “Corporate Law: Cases and Materials,” by Robert W. Hamilton and Jonathan R. Macey
- U.S. Securities and Exchange Commission (SEC) guidelines
- IRS guidelines on C Corporations
Summary
A general corporation is a versatile and popular business structure that allows for extensive business activities and public ownership. Its key characteristics include limited liability, perpetual existence, and the ability to raise significant capital. Despite the complexity and double taxation, it remains an attractive option for businesses aiming to scale and attract a broad investor base.
