In the realm of business and commerce, the term "corporation" holds significant weight, representing a pivotal entity in the economic landscape. This article delves into the comprehensive meaning of corporation, its implications, and explores how Bajaj Finserv Business Loan can support corporate endeavours.
What is corporation?
A corporation, often referred to as a company, is a legal entity formed by a group of individuals or stakeholders to conduct business. It is distinct from its owners and shareholders, offering advantages such as limited liability and perpetual existence. Corporations can engage in various activities, ranging from manufacturing goods to providing services, thereby contributing extensively to economic growth and employment.
Meaning of corporation
A corporation is a legal entity that is separate from its owners, typically formed to conduct business. It is recognized by law as an individual entity, capable of entering into contracts, owning assets, and incurring liabilities. The key feature of a corporation is the limited liability it offers to its shareholders. This means that the personal assets of shareholders are protected from business debts or legal actions against the company.
Corporations can be either for-profit or non-profit, and they can issue stock to raise capital. The ownership of a corporation is divided into shares, and shareholders typically vote on major decisions, with day-to-day management handled by executives. Overall, the corporation is a central structure in modern business, enabling growth and facilitating complex financial transactions.
Examples of corporation
An example of a prominent corporation in the technology sector is Google. Founded in the late 20th century, the company is known for its internet services and popular applications like search engines, email services, mapping tools, and video platforms. It generates substantial revenue from advertising, cloud computing, and software development, showcasing significant influence and innovation in the global market.
Another example of a prominent corporation is Apple Inc. Founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne, Apple has become a global leader in consumer electronics, software, and online services. The company is renowned for its iconic products such as the iPhone, iPad, Mac computers, and Apple Watch. Apple's ecosystem includes services like iCloud, iTunes, and the App Store, contributing to its significant revenue streams. Headquartered in Cupertino, California, Apple continues to innovate in technology, design, and user experience, maintaining a strong brand presence worldwide.
Key characteristics of a corporation
| Characteristic | Description |
| Legal Entity | Recognised by law as an individual entity separate from its owners. |
| Limited Liability | Shareholders are typically not personally liable for the corporation's debts. |
| Perpetual Succession | Exists independently of its shareholders, ensuring continuity. |
| Transferability of Shares | Ownership shares can be transferred among shareholders freely. |
| Centralised Management Structure | Operates under a defined management structure with a board of directors. |
What are the common types of corporations?
In India, corporations can take various forms, each with its own distinct characteristics and regulatory requirements. Understanding these types is crucial for entrepreneurs and investors seeking to establish or invest in corporate entities. Here are the different types of corporations commonly found in India:
1. Public Limited Company
Public Limited Companies are formed with a minimum of seven shareholders and no maximum limit. They are regulated by the Companies Act and can raise capital by issuing shares to the public through stock exchanges. Key features include:
- Public offering: Shares can be traded publicly, allowing for widespread ownership.
- Regulatory compliance: Subject to stringent regulatory requirements and financial disclosures.
- Separate legal entity: Offers limited liability protection to shareholders.
2. Private Limited Company
Private Limited Companies are popular due to their flexibility and limited compliance requirements compared to public companies. They require a minimum of two shareholders and can have a maximum of 200 shareholders. Key features include:
- Limited liability: Shareholders' liability is limited to their shares.
- Restrictions on share transfer: Shares cannot be freely traded or transferred without shareholder approval.
- Less stringent compliance: Enjoy certain exemptions from regulatory obligations compared to public companies.
3. One Person Company (OPC)
Introduced to support single entrepreneurs, a One Person Company is a hybrid form that allows a single individual to operate a corporate entity with limited liability. Key features include:
- Single shareholder: Can be formed with only one shareholder who acts as the director.
- Limited liability: Offers limited liability protection to the sole shareholder.
- Conversion: Can convert into a private limited company upon meeting eligibility criteria.
4. Section 8 Company (Non-Profit Organisation)
Section 8 Companies are formed for promoting art, science, commerce, education, research, social welfare, religion, charity, protection of the environment, or any other charitable objective. Key features include:
- Non-profit nature: Any profits generated must be used for promoting the company's objectives and cannot be distributed to members.
- Tax benefits: Eligible for tax exemptions under the Income Tax Act for donations received and utilized for charitable purposes.
- Minimum compliances: Enjoy certain relaxations in compliance compared to other corporate forms.
5. Limited Liability Partnership (LLP)
LLPs combine elements of partnerships and corporations, offering partners limited liability protection while allowing them to manage the business directly. Key features include:
- Limited liability: Partners are not personally liable for the debts and liabilities of the Limited Liability Partnership.
- Flexible management: Partners have the right to manage the business directly.
- Taxation: Taxed as a partnership, with profits passing through to partners' personal tax returns.
How is a corporation formed?
To form a corporation in India, several key steps must be followed. First, the promoters need to choose a suitable name for the company and ensure it is unique. Next, they must file an application for incorporation with the Ministry of Corporate Affairs (MCA) through the MCA21 portal.
Key steps include:
1. Obtain Digital Signature Certificate (DSC): Essential for signing electronic documents.
2. Obtain Director Identification Number (DIN): Required for all directors.
3. File the incorporation form: Submit forms such as SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) along with the Memorandum of Association (MOA) and Articles of Association (AOA).
4. Verification and Approval: The documents are reviewed, and upon approval, the company is registered and issued a Certificate of Incorporation.
In India, private companies typically use "Private Limited" (Pvt Ltd) and public companies use "Limited" (Ltd) as suffixes in their names. The entire process ensures the company is legally recognised and compliant with regulations.
How do corporations work?
Corporations operate through structured governance and ownership. Key processes include:
- Formation: Incorporation under state laws, defining legal rights and responsibilities.
- Management: Oversight by a board of directors elected by shareholders.
- Operations: Conducting business activities to achieve strategic goals and profitability.
- Compliance: Adherence to legal and regulatory requirements governing corporate conduct.
What are the advantages and disadvantages of corporations?
Advantages:
- Separate legal entity: A company is independent from its owners and is considered a legal entity. It can conduct business, own property, enter into contracts, borrow money, sue and be sued, and pay taxes
- Unlimited life: The company continues to exist even if its shareholders or members pass away or can no longer manage it. The company only ends if its charter is changed, and it is officially closed
- Limited liability: Owners are only responsible for the money they have invested. Creditors cannot claim the owners' personal assets for the company's debts
- Easy transfer of ownership shares: Shares of publicly traded companies can be sold easily without needing other shareholders' approval. These shares can be traded in the market freely
- Professional management: Owners do not need to handle daily operations. They vote for a board of directors, who then hire professional managers to run the company
- Source of capital: Companies can raise money by selling shares or issuing bonds
Disadvantages:
- Incorporation costs: Registering a company is more expensive compared to starting a sole proprietorship or partnership
- Double taxation: The company pays taxes on its earnings, and shareholders also pay taxes on dividends they receive
- Documentation: Companies must handle more paperwork, including incorporation documents, annual reports, tax returns, accounting records, licenses, and other important paperwork
What is a corporation vs. a business?
While all corporations are businesses, not all businesses are corporations. A corporation differs from other business structures like partnerships and sole proprietorships primarily in:
- Legal status: Corporations are independent legal entities, distinct from their owners.
- Liability: Shareholders have limited liability, protecting personal assets.
- Taxation: Subject to corporate income tax rates, potentially advantageous or disadvantageous depending on circumstances.
Difference between a limited liability partnership and a corporation
A Limited Liability Partnership (LLP) and a corporation differ primarily in their structure and liability:
- Structure: LLPs combine elements of partnerships and corporations, allowing flexibility in management.
- Liability: In an LLP, partners have limited liability, protecting personal assets against business liabilities.
- Taxation: LLPs are taxed similarly to partnerships, with profits passing through to partners.
Differences between corporation and company
Here are the key differences between a corporation and a company:
- The word "Corporation" is defined in Section 2(11) of the Companies Act, while "Company" is defined in Section 2(20) of the same act
- A corporation can be set up either in India or abroad, while a company can only be set up under the Indian Companies Act, 2013
- A corporation must have a minimum authorised capital of Rs. 5,00,00,000. For a company, the minimum authorised capital is Rs. 1,00,000 for a private company and Rs. 5,00,000 for a public company
- The term "Corporation" is broader and larger compared to "Company”
How does a corporation dissolve?
The dissolution of a corporation occurs when its purpose has been fulfilled or its charter is altered. This process, known as liquidation, is managed by a liquidator. During liquidation, the company’s assets are sold, with the proceeds first used to settle any debts with creditors. After debts are cleared, any remaining funds are distributed among shareholders.
Involuntary liquidation, often triggered by creditors, occurs when a corporation becomes insolvent or bankrupt. In such cases, creditors seek the sale of the company’s assets to recover outstanding debts. The corporation ceases to exist once this process is complete, and its legal obligations are fulfilled.
Who manages the operations of a corporation?
In a corporation, the operations are managed by a board of directors, who are elected annually by the shareholders or owners. The board is responsible for overseeing the day-to-day activities of the corporation and ensuring that it runs smoothly and efficiently. They are tasked with executing the corporation’s business plan and implementing strategies to achieve its goals.
Directors play a crucial role in making key decisions that impact the company’s growth, profitability, and sustainability. Their responsibilities also include safeguarding the corporation’s assets and managing its liabilities with due care and diligence. This involves setting policies, reviewing financial performance, and ensuring that the corporation complies with legal and regulatory requirements.
While the board provides oversight and governance, they may delegate operational tasks to senior management, such as the CEO or other executives, who handle the practical aspects of running the business. Nonetheless, the board remains accountable for the corporation’s overall performance and must act in the best interest of the shareholders. Effective management by the board ensures that the corporation achieves its objectives while maintaining financial stability and ethical standards.
Explore Bajaj Finserv Business Loan
In the competitive business landscape, financial support is crucial for corporations to expand operations, invest in technology, and seize growth opportunities. Bajaj Finserv Business Loan offers tailored financial solutions designed to meet the diverse needs of corporations:
- Flexible loan options: Customizable loan amounts and repayment terms to suit varying business requirements.
- Competitive interest rates: Ensuring cost-effective financing solutions to enhance profitability.
- Quick approval process: Streamlined application process of business loan for swift access to funds, enabling timely execution of business plans.
As businesses evolve and economies flourish, the role of corporations remains indispensable, shaping the future of industries and communities alike. Embrace the potential of corporate enterprise with Bajaj Finserv Business Loan, empowering your vision for a prosperous tomorrow.
