Legal Life of a Corporation: Everything You Need to Know

The legal life of a corporation is perpetual and as long as the corporation is in legal status, it is considered active.3 min read

The legal life of a corporation is perpetual. Corporations are a separate legal entity from the owners or shareholders, and as long as the corporation is in legal status, it is considered active. Legal status includes:

  • Continuity of life.
  • Centralized management.
  • Limited liability.
  • Transfer of interests.

What Is a Corporation?

A corporation is different from a sole proprietorship or partnership because the corporation is a legal entity separate from its owners. This allows the owners and shareholders to avoid personal liability from any debts of legal claims made against the corporation. To maintain the corporation status, the following must occur:

  • Hold annual corporate meetings.
  • Record meeting minutes.
  • Issue stock certificates to shareholders.
  • Elect a board of directors.
  • Ratify and confirm the existing directors status.

A corporation's main advantage, and why it is widely used, is liability protection. The personal assets cannot be used to fulfill the debts and obligations of the corporation. The only caveat to this rule is if it is shown that the corporation has acted improperly. This action is called piercing the corporate veil. Proof of wrongdoing can include:

  • Failing to follow corporate formalities including holding the annual meeting or keeping meeting minutes.
  • Proof exists that the corporation is being used only to protect the shareholder's personal assets.

If proven, when the veil is removed, the shareholders will become personally liable.

Advantages and Disadvantages of a Corporation

Other advantages of using a corporation include:

  • Earnings can be kept in the corporation for use in future investment opportunities or dividends.
  • Corporations are simple to form and clearly laid out by the laws of the state of formation.
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