Role and Purpose of Corporate Entity Form
Corporate Business Entities
Written by Jason Gordon
Updated at November 29th, 2020
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What is the role and purpose of the corporation?
The concept of the corporation originated through governmental charter allowing individuals to carry on business collectively. Basically, the charter gave the corporate entity form legal status that was similar to personhood. The concept of the corporation as a legal person has expanded over time to the point that corporations enjoy many of the same constitutional protections as US citizens.
The corporate entity also allows individuals to have a beneficial interest without being actively involved in business operations. That is, it allows for increased division and transfer of ownership interest in a business activity. It allows for the utilization of outside capital from investors (rather than just debt or capital contributions from founders) to grow business operations. The active trading of ownership in corporate entities gave rise to the formation of US stock exchanges and the private equities market.
Next Article: Agency Theory and Stakeholder Theory Back to: CORPORATE GOVERNANCE
Discussion: How do you feel about the corporate entity form? Should the corporation be treated as a separate person with rights similar to those of citizens? Why or why not? How do you think the availability of capital funding relates to corporate growth and the creation of new business entities?
Practice Question: How does a corporation facilitate business practice and benefit society?
- Corporations are employers. They also provide an investment vehicle for individuals. This allows for the division of ownership interests, and it allows for capital accumulation through holding an ownership interest.