A corporation is a legal entity created by an agreement between its shareholders. In this agreement, the shareholders agree to pool together their resources to establish a business. The agreement also outlines the roles and responsibilities of each shareholder in the business and determines the ownership structure of the corporation.
The agreement that creates a corporation is known as the Articles of Incorporation. This document sets out the legal framework for the corporation, including its name, purpose, and ownership structure. It also includes the number and types of shares that the corporation can issue, as well as how those shares can be bought and sold.
Shareholders are the owners of a corporation, and they hold an ownership interest in the corporation in the form of shares. When a corporation is created, the shareholders typically elect a board of directors to manage the corporation`s affairs. The board of directors is responsible for making major business decisions on behalf of the corporation, such as setting policy, establishing budgets, and hiring senior management.
In addition to the Articles of Incorporation, corporations must also file other documents with the state in which they are incorporated. These documents typically include the corporation`s bylaws, which set out the rules governing the corporation`s internal affairs. For example, the bylaws may outline the process for electing directors or for issuing and redeeming shares.
One of the main benefits of incorporating a business is that it provides limited liability protection to the corporation`s shareholders. This means that the shareholders are generally not personally liable for the debts or obligations of the corporation. In other words, if the corporation is sued or goes bankrupt, the shareholders` personal assets are generally protected.
In conclusion, a corporation is created by an agreement between its shareholders, which outlines the legal framework for the corporation and sets out the roles and responsibilities of each shareholder. This agreement is known as the Articles of Incorporation, and it establishes the ownership structure of the corporation. Once a corporation is created, the shareholders elect a board of directors to manage the corporation`s affairs, and the corporation must file other documents with the state in which it is incorporated.