Characteristics Corporation
  • Single proprietorship
  • Partnership

legal status separate legal entity (legal "person") legally identical with owners
indefinite life yes no

separation of ownership and control

yes no
limited liability yes no
ease of transfer of ownership (sale) yes no
ease of raising funds yes no
ease of  formation no ( needs "permission" from state yes
Information disclosure Required and regulated negotiated (who wants to know?)


Characteristics of the Corporation

(and why they matter)

separate legal entity (legal "person")  

Because the corporation is a separate "person" under the law, it is treated separately from its owners ("stockholders") for legal and tax purposes.  A corporation can sue and be sued (instead of the owners as in the case of a single proprietorship).  It is also treated separately for tax purpose
indefinite life Because the corporation is a separate "person" under the law, it theoretically can go on forever.

limited liability

Because the corporation is a separate legal "person", the worst that can happen to its owners is that they lose their investment.  This is very important, because it makes possible the separation of ownership from control and makes it easy to sell shares (stock) and therefore raise funds.
separation of ownership and control    


stockholders in large, publicly traded corporations "leave the driving to management".  They are willing to do this because of the llimited liability they face and because they can easily sell their shares if they don't like what management is doing.
ease of transfer of ownership (sale)       It is easy to sell stock in a publicly traded corporation because there is usually an active market for the shares (willing buyers and sellers)
ease of raising funds



Because of the factors above it is possible to sell easily sell fractions of the corporation (thats what "stock" or "shares" means).  This is why, businesses "go public" when they grow  and need lots of money.  

needs "charter" from state)



Before a company can be a corporation it must file papers ("articles of incorporation") with the state (any state will do) and receive permission (its "charter").  The purpose of this is to protect absentee stockholders (separation of ownership from control!).   Today this is largely a formality, but the corporation is bound by the rules it established in the  articles of  incorporation and only the stockholders can change them.
Separate federal laws


To further protect owners and creditors, separate federal laws govern (for example) how corporations can raise money from the public (Securities Act of 1933) and
Information disclosure is  regulated what kind of information must be released on a regular basis and in what form. (Securities Exchange Act of 1934)