To understand artificial person definition, you should know the law finds it necessary to provide an entity, such as a firm, with certain rights and responsibilities that are commonly held by humans. In doing so, when an entity is established, it is recognized as an artificial person that exists independently and treated as a separate person from its participants. Artificial persons may also be referred to as juristic or legal persons.

Why Are Corporations Viewed as Artificial Persons?

A corporation is recognized as an artificial person. The word incorporate comes from the Latin corpus, meaning body. It essentially means formed or added into a body and united by legal enactment.

When a new legal entity is incorporated, owners are able to act as one. The new body assumes responsibility for its actions, while legally distancing themselves from individual personal liability. Owners are often referred to as stakeholders. Not to be confused with a shareholder, which owns part of a company through shares of stock. Stakeholders have interests other than stock performance only.

What Rights Do Artificial Persons Have?

Considered and treated as artificial persons, corporations are entitled to specific rights, such as:

  • Rights to protection under the law.
  • Rights to property.
  • Right to enter into business agreements and contracts.

However, corporations are not allowed to exercise certain liberties, such as the right to marry, parent a child, vote, or run for office. Individuals, on the other hand, have the freedom to exercise such rights.

What Responsibilities Do Artificial Persons Have?

Corporations are held liable for the actions of their companies, as well as the people they choose to employ; just as individuals and groups of people are responsible for their own actions. If recognized as an artificial person under the law, government and courts hold corporations liable and responsible to operate in accordance with statutes and government regulations. These regulations stem from all levels of government; federal, state, local, and all applicable jurisdictions.

Corporations have unlimited life, meaning that the sale of stock or death of a stockholder or employee does not impact the continuous life of the corporation.

Can an Artificial Person Be Sued?

As a separate legal entity, operating under its own name, a corporation can be sued. As previously mentioned, courts hold corporations liable and responsible to obey and operate under the law, just as individuals are to obey laws. If a corporation fails to comply or is sued and found guilty, the court can order them to pay fines or even order them to liquefy the entity.

How Does the 14th Amendment Apply?

Being that corporations are recognized as artificial persons, courts allow them to assert basic 14th amendment rights, such as due process and equal protection. Therefore, corporations operate with some rights and are under the protection of many of the same laws as individuals are. They are free to sue, hire attorneys, and collect damages when a crime has been committed against them.

When Was the Concept Started?

The concept of corporations being considered as individuals dates back to 1891 when a case was heard in the Supreme Court -- Gulf, Colorado & Santa Fe Railway Co. v. Ellis. The Supreme Court ruled that just as individual citizens have protection under the law, states do not have the power to deny corporations equal protection of the law.

How Do Taxes Apply to Artificial Persons?

The application of tax rates and requirements applies to corporations differently than individuals. Once incorporated, a corporation has to decide whether it will benefit from being taxed as a C corporation or an S corporation.

In short, a C corporation is treated as a separate taxpayer incurring taxes and expenses. If profits are made, they are distributed to the shareholders and they must pay personal income tax on the income. This creates a double taxation and is why many, especially small businesses, do not opt for C corporation status.

If a corporation qualifies to act as an S corporation, then taxes, profits, and losses all pass through the corporation to shareholders and are only reported on the shareholders' tax returns, thus eliminating double taxation.

Not all corporations can choose to be an S corporation for tax purposes. They must meet certain criteria to qualify as an S corporation. For example, the number and type of shareholders, along with classes of stock, are elements taken into consideration when determining if the company will qualify for S status.

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