General Corporation Definition

General Corporation Definition

A general corporation is a legal entity owned by shareholders, managed by a board of directors, and run by officers. It’s the most common type of corporation. 

General corporations are the best option for owners who plan to:

• Offer stock to raise capital
• Transact business globally 
• Expand by acquiring other companies

This business structure also makes it possible to eventually become a publicly traded corporation.

Shareholders

Shareholders usually receive one vote for each share of common stock they own. They vote to elect members to the board of directors as well as on other significant corporate issues. 

The shareholder who holds the most shares, known as the majority shareholder, can control the company. Minority shareholders, on the other hand, have little to no control over the company but can sell their stock at any time. 

Directors

The board of directors is responsible for managing the company and deciding key issues such as:

• When to issue stock
• Whom to elect as officers
• What corporate policies and goals to set
• Whether to pay dividends

Because they bear so much responsibility, they owe the corporation a fiduciary duty. This means they have a duty to make careful, informed decisions and act in the corporation’s and its shareholders’ best interest. See fiduciary duty definition.

Officers

The officers handle the general corporation’s day-to-day operations and report to the board of directors. Officers usually include the president, vice president, secretary, and treasurer. But a board also may create other offices such as that of the chief executive officer, chief operations officer, or chief financial officer. 

Other Names for a General Corporation

A general corporation may also be referred to as a:

• C corporation
• Open corporation
• Stock corporation

If the general corporation meets the requirements established by the Internal Revenue Service and files Form 2553, it may elect Subchapter S Status. This allows the general corporation to pass corporate income, losses, deductions, and credits through to its shareholders. The shareholders then pay taxes on the income and losses at their individual income tax rates.

General Corporation Benefits

Forming a general corporation has advantages in addition to making it possible to form a public company. The biggest benefit is that the corporate structure limits the liability of the directors, officers, and shareholders so that their personal assets can’t be seized to cover corporate debts. It’s also much easier to raise capital or transfer ownership because you can just sell stock shares. And so long as the board of directors abides by all regulations and requirements, a general corporation can exist indefinitely. 

General Corporation Disadvantages

One downside to a general corporation is that it’s more expensive to form than a limited liability company or sole proprietorship. State and federal laws also require general corporations to observe more formalities to maintain their liability shield. For instance, directors and officers must hold regular meetings, take minutes, maintain various records, and comply with reporting requirements. 

General Corporation Examples

Most large companies are corporations. Examples include Amazon, General Motors, and Apple. 

Summary

A general corporation is a legal entity owned by stockholders. The most common reasons for forming one are to shield the shareholders, directors, and officers from liability for the corporation’s debts and to pave the way for taking the corporation public.