An Introduction to the Corporation

• Pages: 1-14
• Author: Stephen M. Bainbridge

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Chapter 1

AN INTRODUCTION TO

THE CORPORATION

§ 1.1 What Is a Corporation?

A leading legal dictionary defines the corporation as “an

artificial person or legal entity created by or under the authority of

the laws of a state or nation. . . .”

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Although technically correct, this

definition is not especially enlightening. It’s more helpful to think of

the corporation as a legal fiction characterized by six attributes:

formal creation as prescribed by state law; legal personality;

separation of ownership and control; freely alienable ownership

interests; indefinite duration; and limited liability.

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Taken together,

these six attributes give the corporate form considerable advantages

for large businesses as compared to the other forms of business

organizations available under U.S. law. Each of these attributes will

be discussed in far greater detail during the course of this text, but

an overview at the outset may prove helpful.

A. Formal Creation

One creates a corporation by filing a document called the articles

of incorporation (a.k.a. charter) with the appropriate government

office of the chosen state of incorporation. The articles are the most

important of the corporation’s organic documents. They set out the

corporation’s essential rules of the road—the basic terms under

which it will operate. Each state corporate statute sets forth the

minimum provisions the articles must contain. Model Business

Corporation Act (MBCA) § 2.02, for example, requires the articles to

include the corporation’s name, the number of shares the corporation

is authorized to issue, the name and address of the corporation’s

registered agent, and the name and address of the incorporator. In

addition, § 2.02 lists numerous optional provisions that must be

included in the articles if the corporation wishes to avail itself of

them. Among the more important of these are provisions relating to

division of shares into classes and series and liability of directors.

Once prepared, the articles are filed with the appropriate state

agency, which in most states is the Secretary of State’s office. In some

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Black’s Law Dictionary 307 (5th ed. 1979).

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Note that the latter four of these attributes are default rules. Some

corporations opt out of one or more of them. In particular, close corporations often

unify ownership and control to one degree or another and/or restrict transfer of

ownership interests.