A corporation is a legal entity that is separate from its owners, known as shareholders. One defining feature of a corporation is the limited liability it provides to its shareholders, meaning their personal assets are generally shielded from the company's debts and legal liabilities. This separation of personal and business assets is a fundamental aspect of the corporate structure, offering shareholders protection against individual financial risks associated with the company's operations. Corporations can issue stock to raise capital, and ownership is determined by the number of shares held by individual shareholders.
Corporations have a formalized structure with a board of directors overseeing major decisions and appointed officers managing day-to-day operations. This clear hierarchy ensures efficient decision-making processes and accountability. Unlike pass-through entities, corporations face double taxation, where the company's profits are taxed at the corporate level, and shareholders are also taxed on any dividends received. Despite this taxation structure, the advantages of limited liability, access to capital markets, and a structured governance system make corporations an attractive option for businesses with growth aspirations and a need for substantial capital investment.