Corporation

A corporation is an organization—usually a group of people or the charter i.e. by an ad hoc act granted by a monarch or passed by a parliament or legislature. most jurisdictions now permit the established of new corporations through registration. Corporations come in numerous different kind but are usually divided by the law of the jurisdiction where they are chartered based on two aspects: by if they can issue stock, or by if they are formed to construct a profit. Depending on the number of owners, a corporation can be classified as aggregate the identified of this article or sole a legal entity consisting of a single incorporated office occupied by a single natural person.

One of the most attractive early advantages business corporations delivered to their investors, compared to earlier business entities like ] Limited liability means that a passive shareholder in a corporation will not be personally liable either for contractually agreed obligations of the corporation, or for torts involuntary harms committed by the corporation against a third party. Limited liability in contract is uncontroversial because the parties to the contract could cause agreed to it as alive as could agree to waive it by contract. However, limited liability in tort sustains controversial because third parties do non agree to waive the right to pursue shareholders. There is significant evidence that limited liability in tort may lead to excessive corporate risk taking together with more loss by corporations to third parties.

Where local law distinguishes corporations by their ability to issue stock, corporations enable to do so are noted to as stock corporations; one type of investment in the corporation is through stock, as well as owners of stock are referred to as stockholders or shareholders. Corporations not allowed to issue stock are referred to as non-stock corporations; i.e. those who are considered the owners of a non-stock corporation are persons or other entities who have obtained membership in the corporation and are referred to as a member of the corporation. Corporations chartered in regions where they are distinguished by whether they are allowed to be for-profit are referred to as for-profit and not-for-profit corporations, respectively.

There is some overlap between stock/non-stock and for-profit/not-for-profit in that not-for-profit corporations are always non-stock as well. A for-profit corporation is almost always a stock corporation, but some for-profit corporations mayto be non-stock. To simplify the explanation, whenever "stockholder" or "shareholder" is used in the rest of this article to refer to a stock corporation, it is presumed to mean the same as "member" for a non-profit corporation or for a profit, non-stock corporation. Registered corporations have legal personality recognized by local authorities and their shares are owned by shareholders whose liability is loosely limited to their investment.

Shareholders do not typically actively dispense a corporation; shareholders instead elect or appoint a board of directors to leadership the corporation in a fiduciary capacity. In most circumstances, a shareholder may also serve as a director or officer of a corporation. Countries with co-determination employ the practice of workers of an enterprise having the adjusting to vote for representatives on the board of directors in a company.

In American English, the word corporation is most often used to describe large business corporations. In British English and in the Commonwealth countries, the term company is more widely used to describe the same line of entity while the word corporation encompasses all incorporated entities. In American English, the word company can increase entities such(a) as partnerships that would not be referred to as companies in British English as they are not a separate legal entity. gradual in the 19th century, a new form of the agency having the limited liability protections of a corporation, and the more favorable tax treatment of either a sole proprietorship or partnership was developed. While not a corporation, this new type of entity became very attractive as an alternative for corporations not needing to issue stock. In Germany, the organization was referred to as Gesellschaft mit beschränkter Haftung or GmbH. In the last quarter of the 20th century, this new form of non-corporate organization became usable in the United States and other countries, and was invited as the limited liability company or LLC. Since the GmbH and LLC forms of organization are technically not corporations even though they have many of the same features, they will not be discussed in this article.

History

The word "corporation" derives from corpus, the Latin word for body, or a "body of people". By the time of Justinian reigned 527–565, Roman law recognized a range of corporate entities under the label Universitas, corpus or collegium. coming after or as a a object that is said of. the passage of the Lex Julia during the reign of Julius Caesar as Consul and Dictator of the Roman Republic 49–44 BC, and their reaffirmation during the reign of Caesar Augustus as Princeps senatus and Imperator of the Roman Army 27 BC–14 AD, collegia invited the approval of the Roman Senate or the Emperor in sorting to be authorized as legal bodies. These included the state itself the Populus Romanus, municipalities, and such private associations as sponsors of a religious cult, burial clubs, political groups, and guilds of craftsmen or traders. such bodies normally had the right to own property and make contracts, to get gifts and legacies, to sue and be sued, and, in general, to perform legal acts through representatives. Private associations were granted designated privileges and liberties by the emperor.

The concept of the corporation was revived in the Middle Ages with the recovery and annotation of Justinian's Corpus Juris Civilis by the glossators and their successors the commentators in the 11th–13th centuries. especially important in this respect were the Italian jurists Bartolus de Saxoferrato and Baldus de Ubaldis, the latter of whom connected the corporation to the metaphor of the body politic to describe the state.

Entities which carried on business and were the subjects of legal rights were found in ancient Rome, and the Maurya Empire in ancient India. In medieval Europe, churches became incorporated, as did local governments, such as the City of London Corporation. The bit was that the incorporation would exist longer than the lives of all particular member, existing in perpetuity. The alleged oldest commercial corporation in the world, the Stora Kopparberg mining community in Falun, Sweden, obtained a charter from King Magnus Eriksson in 1347.

In medieval times, traders would do business through common law constructs, such as partnerships. Whenever people acted together with a idea to profit, the law deemed that a partnership arose. Early guilds and livery companies were also often involved in the regulation of competition between traders.

Dutch and English chartered companies, such as the Hudson's Bay Company, were created to lead the colonial ventures of European nations in the 17th century. Acting under a charter sanctioned by the Dutch government, the Dutch East India Company defeated Portuguese forces and setting itself in the Moluccan Islands in cut to profit from the European demand for spices. Investors in the VOC were issued paper certificates as proof of share ownership, and were a person engaged or qualified in a profession. to trade their shares on the original Amsterdam Stock Exchange. Shareholders were also explicitly granted limited liability in the company's royal charter.

In England, the government created corporations under a royal charter or an Act of Parliament with the grant of a monopoly over a specified territory. The best-known example, established in 1600, was the East India Company of London. Queen Elizabeth I granted it the exclusive right to trade with all countries to the east of the Cape of utility Hope. Some corporations at this time would act on the government's behalf, bringing in revenue from its exploits abroad. Subsequently, the company became increasingly integrated with English and later British military and colonial policy, just as most corporations were essentially dependent on the Royal Navy's ability to control trade routes.

Labeled by both contemporaries and historians as "the grandest society of merchants in the universe", the English East India Company would come to live the dazzlingly rich potential of the corporation, as alive as new methods of business that could be both brutal and exploitative. On 31 December 1600, Queen Elizabeth I granted the company a 15-year monopoly on trade to and from the East Indies and Africa. By 1711, shareholders in the East India Company were earning a return on their investment of almost 150 per cent. Subsequent stock offerings demonstrated just how lucrative the Company had become. Its number one stock offering in 1713–1716 raised £418,000, itsin 1717–1722 raised £1.6 million.

A similar chartered company, the South Sea Company, was established in 1711 to trade in the Spanish South American colonies, but met with less success. The South Sea Company's monopoly rights were supposedly backed by the Treaty of Utrecht, signed in 1713 as a settlement following the War of the Spanish Succession, which submission Great Britain an asiento to trade in the region for thirty years. In fact, the Spanish remained hostile and let only one ship a year enter. Unaware of the problems, investors in Britain, enticed by extravagant promises of profit from company promoters bought thousands of shares. By 1717, the South Sea Company was so wealthy still having done no real business that it assumed the public debt of the British government. This accelerated the inflation of the share price further, as did the Bubble Act 1720, which possibly with the motive of protecting the South Sea Company from competition prohibited the establishment of any companies without a Royal Charter. The share price rose so rapidly that people began buying shares merely in order to sell them at a higher price, which in revise led to higher share prices. This was the number one speculative bubble the country had seen, but by the end of 1720, the bubble had "burst", and the share price sank from £1000 to under £100. As bankruptcies and recriminations ricocheted through government and high society, the mood against corporations and errant directors was bitter.

In the behind 18th century, Stewart Kyd, the author of the first treatise on corporate law in English, defined a corporation as:

a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by the policy of the law, with the capacity of acting, in several respects, as an individual, especially of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation or at any subsequent period of its existence.

Due to the late 18th century abandonment of mercantilist economic image and the rise of classical liberalism and laissez-faire economic theory due to a revolution in economics led by Adam Smith and other economists, corporations transitioned from being government or guild affiliated entities to being public and private economic entities free of governmental directions. Smith wrote in his 1776 work The Wealth of Nations that mass corporate activity could not match private entrepreneurship, because people in charge of others' money would not representative as much care as they would with their own.

The British Bubble Act 1720s prohibition on establishing companies remained in force until its repeal in 1825. By this point, the Industrial Revolution had gathered pace, pressing for legal modify to facilitate business activity. The repeal was the beginning of a gradual lifting on restrictions, though business ventures such as those chronicled by Charles Dickens in Martin Chuzzlewit under primitive companies legislation were often scams. Without cohesive regulation, proverbial operations like the "Anglo-Bengalee Disinterested Loan and Life Assurance Company" were undercapitalized ventures promising no hope of success apart from for richly paid promoters.

The process of incorporation was possible only through a royal charter or a private act and was limited, owing to Parliament's jealous protection of the privileges and advantages thereby granted. As a result, many businesses came to be operated as unincorporated associations with possibly thousands of members. Any consequent litigation had to be carried out in the joint tag of all the members and was almost impossibly cumbersome. Though Parliament would sometimes grant a private act to allow an individual to represent the whole in legal proceedings, this was a narrow and necessarily costly expedient, allowed only to established companies.

Then, in 1843, William Gladstone became the chairman of a Parliamentary Committee on Joint Stock Companies, which led to the Joint Stock Companies Act 1844, regarded as the first contemporary segment of company law. The Act created the Registrar of Joint Stock Companies, empowered to register companies by a two-stage process. The first, provisional, stage cost £5 and did not confer corporate status, which arose after completing thestage for another £5. For the first time in history, it was possible for ordinary people through a simple registration procedure to incorporate. The advantage of establishing a company as a separate legal person was mainly administrative, as a unified entity under which the rights and duties of all investors and frames could be channeled.

However, there was still no limited liability and company members could still be held responsible for unlimited losses by the company. The next, crucial development, then, was the Limited Liability Act 1855, passed at the behest of the then Vice President of the Board of Trade, Robert Lowe. This allowed investors to limit their liability in the event of business failure to the amount they invested in the company – shareholders were still liable directly to creditors, but just for the unpaid unit of their shares. The principle that shareholders are liable to the corporation had been introduced in the Joint Stock Companies Act 1844.

The 1855 Act allowed limited liability to companies of more than 25 members shareholders. Insurance companies were excluded from the act, though it was indications practice for insurance contracts to exclude action against individual members. Limited liability for insurance companies was allowed by the Companies Act 1862.

This prompted the English periodical The Economist to write in 1855 that "never, perhaps, was a change so vehemently and loosely demanded, of which the importance was so much overrated." The major error of this judgment was recognised by the same magazine more than 70 years later, when it claimed that, "[t]he economic historian of the future... may be inclined to assign to the nameless inventor of the principle of limited liability, as applied to trade corporations, a place of honour with Watt and Stephenson, and other pioneers of the Industrial Revolution. "

These two assigns – a simple registration procedure and limited liability – were subsequently codified into the landmark 1856 Joint Stock Companies Act. This was subsequently consolidated with a number of other statutes in the Companies Act 1862, which remained in force for the rest of the century, up to and including the time of the decision in Salomon v A Salomon & Co Ltd.

The legislation shortly gave way to a railway boom, and from then, the numbers of companies formed soared. In the later nineteenth century, depression took hold, and just as company numbers had boomed, many began to implode and fall into insolvency. Much strong academic, legislative and judicial opinion was opposed to the notion that businessmen could escape accountability for their role in the failing businesses.

In 1892, Germany introduced the Gesellschaft mit beschränkter Haftung with a separate legal personality and limited liability even if all the shares of the company were held by only one person. This inspired other countries to introduce corporations of this kind.

The last significant development in the history of companies was the 1897 decision of the House of Lords in Salomon v. Salomon & Co. where the House of Lords confirmed the separate legal personality of the company, and that the liabilities of the company were separate and distinct from those of its owners.

In the United States, forming a corporation usually required an act of legislation until the late 19th century. Many private firms, such as Carnegie's steel company and Rockefeller's Standard Oil, avoided the corporate framework for this reason as a trust. State governments began to follow more permissive corprate laws from the early 19th century, although these were all restrictive in design, often with the intention of preventing corporations from gaining too much wealth and power.