What is a corporation in legal English?
Legal English Innovation
What is a corporation in Legal English?
In British English, a corporation is known as a company. An independent entity owned by shareholders and managed by directors.
Main types of corporations in Legal English
UK
Private Limited Company (LTD)
Public Limited Company (PLC)
US
Limited liability company (LLC)
S – corporation (s-corp)
C – corporation (c-corp)
Legal English Innovation
New Vocabulary
a sole proprietorship
a partnership
a legal entity
to get sued
to go after
a debt
a shortfall
to manage
A board of directors
the day-to-day operations
double taxation
a profit
a pass-through entity
a dividend
We can teach you legal English.
Legal English Innovation
Listening Activity Part 1
Area of law: Company/Corporate Law
Section 5 – Types of Corporations
Listening task: Take notes.
Timing: This listening is 2 minutes and 30 seconds long.
In today’s talk, I’ll be addressing the question of what a corporation is, specifically how it differs from a sole proprietorship or partnership. A corporation is a separate and distinct legal entity. This means that it can open a bank account, own property and do business, all under its own name. The main advantage of a corporation is that its owners, known as stockholders or shareholders, are not personally liable for its debts and liabilities. For example, if a corporation gets sued and is forced into bankruptcy, the “owners” will not be required to pay the debt with their own money. If the assets of the corporation are not enough to cover the debts, the creditors cannot go after the stockholders, directors or officers of the corporation to recover any shortfall.
A corporation is managed by a board of directors, which is responsible for making major business decisions and overseeing the general affairs of the corporation. These directors are elected by the stockholders of the corporation. Officers, who run the day-to-day operations of the corporation, are appointed by the directors.
One major disadvantage of a traditional corporation is double taxation. A traditional corporation, known as a “C-corporation”, pays corporate tax on its corporate income (the first tax). Then, when the C- corporation distributes profits to its stockholders, the stockholders pay income tax on those dividends (the second tax).
One way to avoid double taxation is to choose to be taxed as a pass-through entity, like a partnership or a sole proprietorship. That way, there is only one level of taxation. The corporate profits “pass through” to the owners, who pay taxes on the profits at their individual tax rates. Corporations that make this tax election are known as “S-corporations”.
How was your comprehension? Did you understand 65, 75, 85, or 95%?
Reading and listening simultaneously and focusing on each and every vocabulary word technical term, and detail is a strategy to help you improve your listening.
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Presentation Questions
Create an answer and a defense for the following questions.
1. In your opinion, what do you think is the main function of a corporation?
2. What are the secondary responsibilities and functions of a corporation?
3. How important is Corporate Social Responsibility?
4. Name one corporation that you look up to, and one that questions your ethic.
Group discussion questions
Discuss the following questions with your classmates in an open debate. Remember to join the conversation by stating “this is your name“. This will keep the conversation organized and polite, and if you have any questions or comments please do not hesitate to ask.
1. Executives
a. Is the compensation fair?
b. Should they be personally liable?
c. How important are they in the performance of the company?
2. Shareholders
a. Is the only objective to earn a profit?
b. Should shareholders/members be responsible beyond the extent of their investment?
3. Employees
a. How important are the employees in a corporation?
b. What is the biggest advantage and disadvantage of being an employee?
4. Other Stakeholders
a. Who are the stakeholders of a corporation?
b. How can stakeholders be protected?
Legal English Innovation
Listening Activity Part 2
Area of law: Company/Corporate Law
Section 5 – Advantages and Disadvantages of a Corporation
Listening task: Take notes and organize a presentation setting out the advantages and disadvantages of a corporation.
Timing: This listening is 3 minutes and 30 seconds long.
So, as I was saying, corporations enjoy many advantages over other business entities. However, the main advantage of corporations, and remember this, all those future risk takers among you, is that stockholders are not liable for corporate debts. This is the most important characteristic of a corporation. In contrast, in the case of sole proprietorships and partnerships, the owners are personally responsible for the debts of the business. If the assets of the sole proprietorship or partnership cannot satisfy the debt, creditors can go after each owner’s personal bank account, house, etc. to make up the difference. As we’ve seen, if a corporation runs out of funds, its owners are usually not liable.
The second benefit of corporations is self-employment tax savings. Earnings from a sole proprietorship are subject to self-employment taxes. With a corporation, only salaries (and not profits) are subject to such taxes.
The third advantage of a corporation is its continuous life. The life of a corporation, unlike that of a partnership or sole proprietorship, does not expire upon the death of its stockholders, directors or officers.
The fourth advantage is the fact that it’s easier for a corporation to raise money. A corporation has many avenues to raise capital. It can sell shares, and it can create new types of stock, with different voting or profit characteristics.
The fifth and last advantage is the ease of transfer. Ownership interests in a corporation may be sold to third parties without disturbing the continued operation of the business. The business of a sole proprietorship or partnership, on the other hand, cannot be sold whole; instead, each of its assets, licenses and permits must be individually transferred, and new bank accounts and tax identification numbers are required.
Right, let’s move on to the disadvantages. The first of these drawbacks is the higher cost.Corporations cost more to set up and run than a sole proprietorship or partnership. For example,there are the initial formation fees, filing fees and annual state.
The second disadvantage is the formal organization and the corporate formalities. A corporation can only be created by filing legal documents with the state. In addition, a corporation must adhere to technical formalities. These include holding board and shareholder meetings, recording minutes, having the board of directors approve major business transactions, and corporate record-keeping. If these formalities are not observed, the stockholders risk losing their personal liability protection. While observing corporate formalities is not difficult, it can be time consuming. This is not the case with either a sole proprietorship or a partnership, both of which can commence and operate without any formal organizing or operating procedures, not even a written agreement.
The third and final disadvantage is unemployment tax. A stockholder-employee of a corporation is required to pay unemployment insurance taxes on his or her salary, whereas a sole proprietor or partner is not.
Legal English Innovation
Legal English Innovation
US Legislation
The Sherman Antitrust Act of 1890
Delaware enacted its General Corporation Law in 1899
Securities and Exchange Act of 1934
UK Legislation
The Bubble Act 1720’s
The Joint Stock Companies Act 1844
The Companies Act 1862
The Companies Act 2006
Legal English Innovation
Writing Activity
Area of Law: Company Law
Writing Task: set out a letter to a client advising on setting up a corporation. Point out the advantages and disadvantages to help them in their decision making. Maintain a formal register.
Word count: 400 words
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About the Author
Eric Froiland
Eric is a legal English teacher from the United States and has been based out of Bogota, Colombia for the last 10 years. He is the owner and founder of Legal English Innovation SAS, which is recognized as the top legal English academy in Colombia and is an official Test of Legal English Skills (TOLES) examination center.
