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Simple English definitions for legal terms
corporations
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A quick definition of corporations:
Corporations are like pretend people. They can do things like sue and borrow money, just like real people. They are made by following rules set by the government, and they can last forever. Each state has its own rules for corporations, but they all need to have papers that say how they were made and how they will be run. Corporations can sell parts of themselves to other people, and those people can make money if the corporation does well. The good thing about corporations is that if something goes wrong, the people who own them usually don't have to pay with their own money. But sometimes, if the corporation does something really bad, the owners might have to pay. Corporations have to tell the government and the public how much money they make and how they spend it. The bad thing about corporations is that they have to pay taxes twice on their money, which means less money for the people who own them. There are some special kinds of corporations that don't have to pay taxes twice, though.
A more thorough explanation:
Corporations are like fictional people. They can do things like sue, lend, borrow, and be sued. They can also easily transfer ownership through stock sales and exist forever. Each state has laws that govern corporations, and most require articles of incorporation and bylaws to define how the corporation is managed. Corporations are primarily created to limit personal liability, meaning that shareholders are only responsible for the money they invested in the corporation. However, in some cases, a lawsuit may require targeting individual shareholder's assets through what is known as piercing the corporate veil.
One of the downsides of a traditional corporation is that it is subject to double taxation. This means that corporate income is taxed at the corporate level and then again at the individual level when shareholders receive their profits. To avoid this, S-corporations were created.
For example, if a corporation with 10 shareholders records a profit of $100,000 and the tax rate is 10%, only $90,000 will be given to shareholders for a $9,000/shareholder profit. This $9,000 profit will again be taxed at the individual level, and each shareholder will walk away with $8,100.
Corporate law intersects with contracts and commercial transactions law.