Corporation Legal Definition:

A legal entity, created under the authority of a statute, which permits a group of people, as shareholders, to apply to the government for an independent organization to be created, which then pursues set objectives, and is empowered with legal rights usually only reserved for individuals, such as to sue and be sued, own property, hire employees or loan and borrow money.

Related Terms: Person , Company , Director , Officer , Shareholder , Share , Syndicate , Partnership

In the 1839 Bouvier's Law Dictionary, these words are used:

"An artificial being created by law and composed of individuals who subsist as a body politic under a special denomination with the capacity of perpetual succession and of acting within the scope of its charter as a natural person."

Odgers wrote, in 1911:

"... the law ... recognizes certain artificial entities and treats them as persons, though they only exist in theory. Chief amongst these artificial persons stand corporations."

The United States Supreme Court, in 1819, provided an exceptional legal description of a corporation in this excerpt from Trustees of Dartmouth College v Woodward:

A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and, if the expression may be allowed, individuality; properties, by which a perpetual succession of many persons are considered as the same, and may act as a single individual. They enable a corporation to manage its own affairs, and to hold property, without the perplexing intricacies, the hazardous and endless necessity, of perpetual conveyances for the purpose of transmitting it from hand to hand. It is chiefly for the purpose of clothing bodies of men, in succession, with these qualities and capacities, that corporations were invented, and are in use. By these means, a perpetual succession of individuals are capable of acting for the promotion of the particular object, like one immortal being.

"But this being does not share in the civil government of the country, unless that be the purpose for which it was created. Its immortality no more confers on it political power, or a political character, than immortality would confer such power or character on a natural person."

When a government creates a corporation, it does so by statute or by issuing a charter or a certificate, after which the corporation is an independent legal person in the eyes of the law.

The wide concept of the term, to include profit-seeking and not-for-profits, is exhibited in the US Code which defines a corporation as:

"The term corporation includes (an) association having a power or privilege that a private corporation, but not an individual or a partnership, possesses;  partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association;  joint-stock company; unincorporated company or association; or business trust; but does not include limited partnership."

Canada's Interpretation Act, at §21, is similar to the content of some provincial statutes, such as Ontario's Interpretation Act. The federal law describes a corporation indirectly but as follows:

"Words establishing a corporation shall be construed:
  • As vesting in the corporation power to sue and be sued, to contract and be contracted with by its corporate name, to have a common seal and to alter or change it at pleasure, to have perpetual succession, to acquire and hold personal property for the purposes for which the corporation is established and to alienate that property at pleasure;
  • As vesting in a majority of the members of the corporation the power to bind the others by their acts; and
  • As exempting from personal liability for its debts, obligations or acts individual members of the corporation who do not contravene the provisions of the enactment establishing the corporation."

The primary advantage of a for-profit corporation is that it provides the shareholders with a right to participate in the profits (by dividends) without any personal liability (the company absorbs the entire liability of the business).

A corporation is either profit-seeking or not-for-profit, the latter also known as society, not for profit corporation or association.

In Lennard's v Asiatic Petroleum, Justice Haldane wrote:

"(A) corporation is an abstraction. It has no mind of its own any more than it has a body of its own. Its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation."

Edward Coke famously wrote, in Case of Sutton Hospital:

"Corporations cannot commit treason, nor be outlawed, nor excommunicated, for they have no souls."

Further, a corporation has no being to negotiate a contract; this is done by its human servants. All business is done by individuals. And as Coke implied, a "corporation is a person without a personality ... (it) has no sense of right or wrong...."1

The popularity and growth of corporations is a unique feature of contemporary law and with that, the admonitions of Coke continue as reflected in some modern social justice commentators:

“One hundred years ago, the corporation (was) relatively insignificant. But today, the corporation has become the most dominant institution in our society....

"Corporations are artificial creations. You might say they are monsters trying to devour as much profit as possible at anyone’s expense....

"All publicly-traded corporation have been structured through a series of legal decisions to have a very disturbing characteristic: they are required by law to place the financial interests of their owners above everything else, even the public good.”2

References

  • Case of Sutton Hospital, 5 Co. Rep. 303 (1612); also 10 Co. Rep. 32b
  • Interpretation Act, Revised Statutes of British Columbia 1996, Chapter 238, §17.
  • Interpretation Act, Revised Statutes of Canada 1985, Chapter I-21
  • Interpretation Act, Revised Statutes of Ontario 1990, Chapter I-11
  • Lennard's Carrying Co. v Asiatic Petroleum, [1915] A.C. 705
  • NOTE 1: Cochrane, John, Corporations, 69 Adv. 193 (2011)
  • NOTE 2: Ethos (released 2011), McGrain, Pete, writer, director and co-producer.
  • Odgers, W. M., The Common Law of England (London: Sweet & Maxwell, 1911), page 1398.
  • Trustees of Dartmouth College v Woodward, 17 US 518 (1819)
  • US Code, Title 11 (re bankruptcy), Chapter 1, ¶101(9)

Categories & Topics:

Unless otherwise noted, this page was written by of Duhaime.org

Always looking up definitions? Save time with our search provider (modern browsers only)

If you find an error or omission in Duhaime's Law Dictionary, or if you have suggestion for a legal term, we'd love to hear from you!

Survey