Series 24: Corporations

Corporations

Issuers of securities can take several forms. The most common form is the corporation. The word corporation comes from the Latin word corpus or body. The name suggests one of the key reasons the corporation is such a powerful and successful business structure. In sharp contrast to a sole proprietorship or partnership, a corporation is a separate legal entity apart from its ownership. Deemed by the courts a “legal person,” a corporation offers the following unique characteristics, which make it much easier than other entities to raise money and to work on long-term opportunities. The corporation provides (1) limited liability for its owners, (2) easily transferable assets, (3) a perpetual existence beyond the life of its ownership, and (4) a centralized management. To be chartered as a corporation, it must meet three of these four characteristics.

• • Limited Liability. Owners can never be held liable for more than the amount of money they invested in the company. Their personal assets and other wealth are not at risk, if the corporation goes bust.
• • Perpe