Key Takeaways

  • A corporation is a separate legal entity from its owners, offering limited liability, perpetual existence, and transferable ownership through shares.
  • Articles of incorporation are foundational documents that legally establish a corporation and outline essential details like its name, purpose, structure, and share information.
  • Corporate bylaws, while not filed with the state, serve as the internal rulebook that governs how the corporation operates and makes decisions.
  • States impose specific requirements for incorporation, and choosing the right state can impact taxes, regulatory burdens, and shareholder protections.
  • Corporate governance is structured through shareholders, a board of directors, and officers, each with distinct roles and legal responsibilities.

What is corporation in business? A corporation is an organization created by individuals that comes with certain liabilities and rights, with the organization separate from its creators. The corporation is also a legal entity that’s managed by officers, also called a board of directors. The corporate structure is the most lucrative way of starting a business because it exists as a distinct entity that safeguards business owners.

The business itself has the legal rights of a person, with the exception of voting rights, along with various other limitations. In essence, a corporation is also called a legal person, and it is subject to the same mandates as any other individual, such as paying taxes.

A corporation can also be the following:

• A non-profit group that services the public good 

• A municipal corporation in the form of a town or city

• A private business organized to amass profit (standard corporation)

With that, most corporations are created to provide income to shareholders. The main advantages include:

• Indefinite existence, even if members die or file bankruptcy

• Ownership shares can be transferred in the form of shares or gifts

• Limited liability protections to members

The most common type of corporation in the United States is a C corporation. A corporation is created through a group of shareholders who retain ownership of the business, and such ownership is representedthrough the retention of common stock. Further, a corporation may have several shareholders or a single one. When it comes to publicly-traded corporations, thousands of shareholders may hold stock in one corporation.

State Requirements

Corporations exist under state laws that grant corporate charters. You may choose the state where you wish to incorporate, and the state you choose will be the headquarters of your business, or the place where you conduct most of your business operations.

Moreover, some owners incorporate in states that have fewer regulations, and other states do not mandate corporate income taxes. Such states include:

• Delaware

• Wyoming

• Nevada

If you choose to incorporate in one of the aforementioned states but wish to register in another state, you need to ask for qualification in the state where you intend to conduct business, and you may have to pay a fee to get the qualification. You would then have to register the business as a foreign entity in the state where you will conduct business, in addition to paying state taxes.

When it comes to creating a corporation, many states mandate at least two or three individuals create a corporation, but they do not have to be shareholders.

Note:  You can also ask family members or friends to be officers in your business.

Board members are not usually held liable for corporate debts, but they are obligated to care about a corporation, and they can be personally responsible if they fail in such a duty.

Choosing the Right Jurisdiction for Incorporation

Where you form your corporation can significantly affect its tax obligations, regulatory compliance, and governance requirements. While many businesses incorporate in their home state, others opt for states like Delaware, Nevada, or Wyoming due to their business-friendly legal frameworks, strong shareholder protections, and minimal corporate taxes. Delaware, for example, is a popular choice because of its specialized Court of Chancery, which handles corporate disputes efficiently and predictably.

Additionally, foreign qualification is required if you incorporate in one state but operate in another. This involves registering your corporation as a “foreign corporation” in the state where you conduct business and paying any associated fees or taxes.

Incorporation Registration

You may incorporate the business via the filing of articles of incorporation with the right agency in your state, usually the secretary of state office. To successfully register your corporation you must have articles of incorporation with the following information on it:

• Physical address and name of the corporation

• Description of business goods and services

• Address and name of registered agent, or a person authorized to receive official paperwork on behalf of your business

• Share numbers and the shareholders

Amending Articles of Incorporation

Corporations may evolve over time, necessitating updates to their foundational documents. Changes such as altering the corporate name, modifying share structure, or updating the business purpose typically require filing articles of amendment with the state. The board of directors usually proposes these changes, which shareholders must then approve according to the procedures outlined in the corporate bylaws. Maintaining accurate and current articles of incorporation ensures continued legal compliance and protects the corporation’s good standing.

Understanding Articles of Incorporation

The articles of incorporation—sometimes called a certificate of incorporation or corporate charter—are the cornerstone of corporate formation. Filed with the state’s business authority (usually the secretary of state), they legally create your corporation and define its essential characteristics. Most states require the following information:

  • Corporate name and principal address
  • Purpose of the corporation (general or specific)
  • Registered agent and office (for receiving legal documents)
  • Stock structure – number and type of shares authorized
  • Names and addresses of incorporators

Some states may also require additional details, such as the duration of the corporation or the names of initial directors. Once filed and approved, the corporation legally exists as a separate entity.

Corporate Names

State authorities will grant a corporation any name, so long as the name is not in use by another company. Such well-known corporations include:

• Toyota Motor Corporation

• The Coca-Cola Company

• Microsoft Corporation

Certain corporations also do business under various names. For instance, Alphabet Inc. notably operates as Google. After the incorporation process, company shareholders receive stock in exchange for cash or other assets to obtain the stock.

Bylaws vs. Articles of Incorporation

While articles of incorporation create the corporation and establish its basic framework, corporate bylaws govern the day-to-day operations and internal management of the company.

Bylaws are not filed with the state but are legally binding on the corporation, its directors, and shareholders. They typically include provisions on:

  • How the board of directors is elected and removed
  • Frequency and procedures for board and shareholder meetings
  • Voting rights and quorum requirements
  • Officer duties and appointment procedures
  • Rules for issuing and transferring shares

Understanding the difference between these two documents is crucial. The articles provide the legal foundation, while the bylaws act as the corporation’s internal “rulebook.”

Corporate Management

The shareholders usually get one vote for each share and can choose a board of directors that appoints officers to oversee daily aspects of the business. A board of directors must also execute a corporation’s goals and business plans and carry out the will of the shareholders.

Additionally, shareholders elect a board of directors each year, and the directors regularly meet anywhere from once a month to a year to discuss business affairs and the general direction of the company. Also, the directors choose officers in the form of

• Presidents

• Vice presidents

• Secretaries

• Treasurers

Corporate Governance and Fiduciary Duties

Effective corporate governance is essential for maintaining legal compliance, protecting shareholder interests, and fostering long-term growth. It is built on three key components:

  1. Shareholders: Owners of the corporation who vote on major issues and elect the board of directors.
  2. Board of Directors: Oversees corporate strategy, financial decisions, and policy, ensuring the company acts in shareholders’ best interests.
  3. Officers: Appointed by the board to manage daily operations, execute strategy, and report on performance.

Directors and officers owe fiduciary duties of care and loyalty. They must act in good faith, make informed decisions, and prioritize the corporation’s interests over their own. Breaches of these duties can lead to personal liability, lawsuits, and regulatory action.

Frequently Asked Questions

  1. What is a corporation in simple terms?
    A corporation is a legally recognized entity separate from its owners. It can own property, enter contracts, sue or be sued, and continues to exist even if ownership changes.
  2. What are the main benefits of forming a corporation?
    Corporations offer limited liability for owners, perpetual existence, easier access to capital, and the ability to transfer ownership through stock.
  3. What is included in the articles of incorporation?
    Articles include essential details like the corporate name, purpose, registered agent, share structure, and incorporator information.
  4. How are bylaws different from articles of incorporation?
    Articles establish the corporation’s legal existence, while bylaws govern its internal operations, decision-making, and corporate procedures.
  5. Do corporations need to update their articles of incorporation?
    Yes. If key details change—such as the company name, share structure, or purpose—corporations must file amendments with the state to remain compliant.

What is corporation in business? To learn more,  submit your legal inquiry to the UpCounsel marketplace. UpCounsel’s lawyers have graduated from some of the best law schools in the nation, and they will answer any questions you have regarding the corporate registration process, including how to maintain your corporate entity. In addition, they will help you maximize all tax advantages afforded to you under a corporate structure.