What are the defining features of Corporation?

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What are the defining features of Corporation?

What are the defining features of Corporation?

What are the defining features of Corporation?….In global economy, the corporation is the most dominant form of business entity. While a corporation is a business entity, not all business entities are corporations, and not all corporations are profit making business entities. For instance, some charitable organisations and universities have the status of corporations but are also not-for-profit-businesses. Given the above, it is important that we note that our primary concern is with corporate entities that are established for profit.

 

Essential Features of a Corporation

Two of the essential features of a corporation employed in defining it are its legal status and ownership of assets. From the legal perspective, a distinction is made between the corporation itself on one hand and those who work in it, manage it, invest in it, or receive its products and services on the other hand. The former is described as a separate entity that is independent of the latter. It is in this regard  that corporations are considered to have perpetual succession in the sense that they can survive the death of any individual investor, employee, or customer.

With regards to ownership of assets, it is the corporation itself, as an entity, that owns assets and not its shareholders or managers. For instance, the factories, buildings, equipments and vehicles of Coca-Cola are the properties of Coca-Cola and not of its shareholders. All that shareholders own are  shares in the company that entitles them to a dividend and a say in some decisions affecting how and who administers the company. Other features of a corporation include:

  1. They are regarded as artificial persons by the law. In this regard, they are seen as having rights and responsibilities in society, just as any individual citizen
  2. Corporations are notionally owned by shareholders but still exist independently of them. It is in this sense that a corporation is said to own its own assets, and its shareholders cannot be held responsible for its debts or any damage caused by the
  3. The managers of a corporation have a fiduciary responsibility to protect the investments of the shareholders. Hence, the management of a corporation is expected to hold the investments of shareholders in trust and to, at all times, act in their best

The above suggests that corporations have certain responsibilities, but it does not yet establish that they have moral responsibilities. Hence, it is necessary that we clarify further, the nature of the responsibilities that corporations have.

Moral responsibility of corporation

A question that comes up in the discourse on the status of a corporation is whether or not they can be rightly said to have any moral responsibility for the rightness or wrongness of its actions. There are arguments to the effect that corporations can be held to be morally responsible for their actions. However, they are all premised on the fact that apart from being legally independent, corporations also have agency independent of their members.

There are two principal arguments in support of the agency independence of corporations. The first appeals to the fact that apart from individuals that take decisions within a corporate entity, every corporation has its own internal decision making structure which directs corporate decision in line with predetermined goals. Given this structure, when the various elements of a corporation act together, most of the corporation’s actions cannot be assigned or attributed to any individual decision or action. Hence, no individual can be directly held responsible for any corporate action. The internal decision making structure of any corporation can be seen in its organisation chart as well as in its established corporate policies that determine the company’s actions far beyond the contribution of any given policy. The important point being made here is that corporations normally have an organised framework of decision making which, by laying down an explicit or implicit purpose for decisions, transcends the framework of responsibility of any individual.

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