June 9, 2020

What is a Corporate Entity?

What is a Corporate Entity?

A corporate entity is a business structure formed specifically to perform activities, such as running an enterprise or holding assets. Although it may be comprised of individual directors, officers, and shareholders, a corporation is a legal entity in and of itself.

Generally speaking, there are three general forms of legal entities through which business can be conducted: (1) sole proprietorship, (2) corporation, and (3) partnership.

There is also the limited liability company (LLC), a business structure that can integrate the pass-through taxation of a partnership or sole proprietorship with the limited liability protections of a corporation. LLC’s are technically not a corporation under state law. Rather they are legal structures that deliver jurisdictional limited liability protection to business owners.

These various forms of entities are legally able to enter into agreements or contracts, purchase property, assume obligations, open a bank account, incur and pay debts, sue and be sued in their own right, and issue stock under their business umbrella.

Businesses throughout the world utilize corporate entity structures. A corporation’s most important attribute is its limited liability provision. This allows shareholders to accrue profits through dividends and stock appreciation without being personally liable for company debt.

Establishing a Corporate Entity

Corporations are created through an incorporation process initiated by either a single shareholder or a group of shareholders with ownership rights to the corporation. This begins with the filing of Articles ofIncorporation in the state jurisdiction where the corporation is seeking to be registered.

A filing can occur in a state outside of where the corporation is located. States like Delaware, Wyoming, and Nevada have favorable incentives for companies registering in their geographic locations. These corporations, however, are required to register as a “foreign” corporation in the state where they actually reside and engage in their business operation.

In these out-of-state scenarios, a corporate entity is typically required to designate a registered agent (a person or company designated to serve as the legal contact of record).

Another benefit of corporations is their ability to provide for unending succession. So, they may technically exist in perpetuity unless dissolved.

A corporation can be set up as a non-profit, as in the case of a charity. However, the vast majority of corporations are established with the intent to provide a return for its shareholders.

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