What is a corporation?

A corporation is defined as a legal entity that is distinct and separate from its owners, also known as shareholders. This means that the corporation can enter into contracts, sue and be sued, and own property in its own name, independent of the individual owners. One of the primary features of a corporation is that it provides limited liability protection to its shareholders. This essential characteristic means that the personal assets of shareholders are typically protected from the corporation's debts and liabilities; they are only at risk for the amount they invested in the corporation.

This protection encourages investment, as shareholders can have peace of mind knowing their personal financial situations are safeguarded. The structure and function of a corporation allow for continuity, as the death or departure of shareholders does not affect the corporation's operations or existence. Understanding this framework is crucial, as it establishes the fundamental differences between corporations and other business forms, such as partnerships or sole proprietorships, which do not typically offer the same level of liability protection.