West´s Encyclopedia of American Law
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They [corporations] cannot commit treason, nor be outlawed, nor excommunicate, for they have no souls.
SIR EDWARD COKE
Corporate Veil
A legal principle that relieves an officer, director, or stockholder of a corporation of individual, personal liability for its obligations as long as it engages in business and is not an ALTER EGO of those individuals.
When a corporation is a sham that is used only for the personal benefit of its officers, directors, or stockholders who want immunity from liability for their wrongful acts, a court will PIERCE THE CORPORATE VEIL, disregard the corporate status of the organization, and impose personal liability upon those responsible for wrongdoing carried out in the name of the corporation.
Corporation
An artificial entity possessing legally enforceable rights and reciprocal obligations and which is created pursuant to the authority of a state or a nation for the accomplishment of a specific purpose or the undertaking of a particular business.
Although a corporation is comprised of natural persons, it has a distinct and separate legal existence independent of them. It has the capacity to endure perpetually, in spite of changes that might be affected in its membership. In addition, a corporation has many rights and powers that individuals do, including the right to take, hold, and convey PROPERTY, to enter into CONTRACTS, and to sue and be sued. It can also exercise any powers it is given by the law under which it was formed.
Historical Background
The concepts underlying the creation of corporations have early historical roots. The idea of CORPORATE PERSONALITY derives to a certain degree from the CODE OF HAMMURABI and Roman law acknowledged corporate personality when allowed by the state. Corporations that were ultimately embodied in English law were initially formed following the Roman conquest of Britain.
Although corporations were established in the American colonies by English kings and Parliament, state governments took on the authority to grant corporate CHARTERS after the colonies achieved independence. Such charters were, however, restricted for a number of years mainly to public enterprises, such as the building of roads and bridges.
The Industrial Revolution and resulting commercial expansion that took place in the nineteenth century advanced the development of corporations. The corporation was the optimum vehicle for the furtherance of large business enterprises, since it joined centralized direction and control with moderate financial investment by, ideally, an unlimited number of people.
Initially, corporations existed primarily in states that were heavily industrialized or where businesses necessitated extensive financing, such as banking and manufacturing enterprises. The life of a corporation was usually restricted to a term of either twenty, thirty, or fifty years, and most of the incorporators were obliged to reside in the state of incorporation. Corporate powers and the amount of indebtedness was strictly regulated by the government.
Laws governing corporations were eventually liberalized in nonindustrial states to lure new corporations and their revenues. Industrial states responded in a similar manner in order to retain the revenues brought in by corporations which were originally established within their geographical boundaries.
Modern Corporations
The corporation is currently the predominant type of business organization in the United States due primarily to the advantages of limited liability and its indefinite duration. Since the corporation is a distinct and separate entity from those who organize and run it, the corporation alone is liable on the business contracts into which it enters. In addition, a corporation theoretically has perpetual existence and, therefore, can continue regardless of various changes in its members.
A corporation also has centralized management, readily transferable interests, a collection of rules to direct its operation, tax advantages, and the facilitation of financing through the issuance of STOCK which enhance its popularity as a valuable tool to conduct business.
Certain disadvantages, however, exist in the formation of a corporation. Such a business organization is subject to extensive formalities, publicity, and state and Federal governmental regulation, such as SECURITIES REGULATION.
Types of Corporate Organizations
Corporations encompass private corporations, nonprofit corporations, and MUNICIPAL CORPORATIONS.
Private corporations are created with the purpose of engaging in business for profit, whereas nonprofit corporations are ordinarily formed to benefit the public at large. Municipal corporations are organizations, such as cities and towns, organized to aid the state in conducting the processes of government in local communities.
Corporations that would ordinarily be regarded as private are regarded in the law as quasi-public when their business is of a nature directly related to the needs of the public. Since such corporations are devoted to a public use, they generally possess the power of EMINENT DOMAIN and can thereby acquire property under government. . .