In this video, I explain the formation of corporation such as articles of incorporation, bylaws and role of promoters. Start your free trialhttps://lnkd.in/g4hZAp2


The nature of a corporation encompasses several distinct characteristics, which are fundamental to understanding how corporations function and are governed. Here's a simplified explanation of the key aspects you've mentioned:

Distinct Legal Entity: A corporation is its own legal entity, separate from the individuals who own it (shareholders), manage it (directors and officers), or work for it. This separation means that in most cases, these individuals are not personally liable for the corporation's debts or legal obligations. Only the corporation itself is held liable.

Taxation: Corporations are subject to different taxation rules:

C Corporation: This is the standard form of corporation. It is taxed separately from its owners. The corporation pays taxes on its profits, and then shareholders pay taxes on any distributions (like dividends) they receive.
S Corporation: This designation allows profits and some losses to be passed directly to the owners' personal income without being subject to corporate tax rates. However, there are restrictions, such as a limit on the number of shareholders and who can be a shareholder.
Ownership and Management: Shareholders own the corporation, but they don't typically manage it. Management responsibilities fall to a board of directors, elected by the shareholders. The board makes major decisions and oversees corporate policies.

Perpetual Life: Unlike a sole proprietorship or partnership, a corporation does not cease to exist if its owner or owners die. It can continue indefinitely until it is legally dissolved.

Freely Transferable Ownership: Shareholders of a corporation can transfer their ownership rights (stocks) freely to others, unless there are specific agreements or restrictions in place.

Formation: Corporations are created under state law, often following guidelines like the Revised Model Business Corporation Act (RMBCA). This requires filing specific documents, like Articles of Incorporation, with a state's business authority and adhering to certain regulations.

Each of these characteristics defines the corporate structure, making it a unique vehicle for business operations, with its advantages in terms of liability protection, potential for growth, and ability to attract investment, but also with specific regulatory and tax obligations.

Promoters Procure Capital Commitments:

Role of Promoters: Before a corporation is officially formed, there are individuals known as "promoters" who take the initiative to start the business. Their main task is to secure capital (money) and other necessary resources for the corporation.
Contracts and Personal Liability: When promoters enter into contracts to obtain these resources, they are personally liable for them. This means that if something goes wrong, the promoters themselves are responsible, not the corporation.
Adoption of Contracts by Corporation: Once the corporation is formed, it can choose to adopt these contracts. This means the corporation agrees to take over the contracts and their responsibilities. However, for the promoters to be released from their personal liability, a specific agreement called a "novation" must be made. A novation is an agreement where the third party (the person or company the promoter made the contract with) agrees to release the promoter from the contract and instead hold the corporation responsible.
Articles of Incorporation:

Filing Requirement: To officially form a corporation, "articles of incorporation" must be filed with the state. This is a legal document that formally creates the corporation.
Contents of the Articles:
Name of the Corporation: The legal name under which the corporation will operate.
Registered Agent: The name and address of a person authorized to receive legal documents on behalf of the corporation.
Incorporators' Details: The names and addresses of the incorporators (the individuals responsible for setting up the corporation).
Authorized Shares: The number and types of shares the corporation is allowed to issue. Under the RMBCA, at least one class of shares must have the right to vote on corporate matters without limitations.

#cpaexaminindia #cpaexam #accountinglectures