What defines a corporation?

A corporation is defined as a legal entity that is separate from its owners, which provides liability protection. This distinction is crucial, as it signifies that the corporation can own property, enter contracts, and be liable for its debts, independently of the individuals who own shares in the corporation. The owners, typically referred to as shareholders, enjoy limited liability, meaning they are generally not personally responsible for the debts and obligations of the corporation beyond their investment in shares. This structure is designed to protect personal assets from business liabilities.

On the other hand, while a collection of individuals conducting business might describe various business entities, it doesn't capture the legal status and protections that a corporation provides. Additionally, a corporation is distinct from a type of partnership; partnerships generally do not afford the same level of liability protection. Lastly, the claim that a corporation does not pay taxes is misleading; corporations are subject to taxation, and their income is taxed at the corporate level before distributions to shareholders are taxed again as dividends, which is known as double taxation. Thus, the correct understanding of a corporation emphasizes its role as a separate legal entity that offers liability protection to its owners.