Characteristics of corporations

Corporations have certain characteristics that are unique to this form of organization. These characteristics are as follows:

  • Capital acquisition. It can be easier for a corporation to acquire debt and equity, since it is not constrained by the financial resources of a few owners. A corporation can sell shares to new investors, and larger entities can issue bonds to obtain a significant amount of debt financing.

  • Dividends. A corporation pays its investors by issuing dividends to them. This differs from the distributions made from a partnership or sole proprietorship to pay their owners.

  • Double taxation. A corporation pays income tax on its earnings. If it also pays a dividend to its investors, the investors must pay income tax on the dividends received. This constitutes double taxation of the earnings of the corporate entity.

  • Life span. A corporation can theoretically operate forever, outlasting its owners. Conversely, the owners may decide to terminate the corporation at any time.

  • Limited liability. Any liabilities incurred by a corporation are not also transferred to its shareholders. Instead, anyone trying to enforce a liability can only pursue the corporate entity for satisfaction.

  • Ownership. Ownership in a corporation is based on the number of shares owned. Buying or selling these shares shifts the ownership of a corporation to a different investor. A public company that has its shares traded on an active stock exchange may have thousands or millions of owners.

  • Professional management. In many cases, the investors who own a company are not actively engaged in its management. Instead, they hire professional managers to handle the oversight of the business on their behalf.

  • Separate entity. A corporation is considered to be an entirely separate operating and legal entity. It operates separately from its owners, and has many of the rights and responsibilities of a person.