The purpose of forming a corporation is to create a new legal entity through which several or many owners can act as one. The word incorporate has its root in the Latin word corpus, or body. This new body takes on the same legal status as the owners have as a group and assumes responsibility for its actions, shielding the owners from direct liability. This doesn't mean that a corporation is a person in the ordinary sense. It just means that the corporate entity is an artificial person that can take the same legal actions as groups of individuals.


Since corporations are acting in place of the owners, it makes sense that they would have the same rights as the owners. These rights include the right to property, the right to enter into contracts and equal protection under the law. To this extent corporations are treated as artificial persons. But there are many things that groups of people can't do together, such as marry, vote or run for office. As a result, while individuals have the right to take these actions, corporations do not.


When people act in groups, they keep all their legal responsibilities. They have to obey laws, follow regulations and avoid damaging other people's property. If an individual hires people, he has to treat them fairly and in accordance with the labor code. Governments and the courts treat corporations exactly the same way, assuming they have the responsibilities of full artificial persons under the law. Just as individual persons are responsible for their own actions, corporations are responsible for their actions, as carried out by their employees.

Legal Proceedings

As legal persons, corporations may sue and be sued. Courts treat them as artificial persons so that they have the same right to take legal action as individuals. They can hire lawyers, file lawsuits and collect damages. When individuals or other corporations commit crimes against them, they have the same rights to police protection as individuals. On the other hand, courts hold corporations liable for their actions and can condemn them to fines or even dissolution if they are found guilty.


Corporations are considered artificial persons for tax purposes. While governments can tax corporations, there is a key difference in the application of tax rates. Corporations generally enjoy lower tax rates than individuals who operate a business. The lower rates are justified because corporations generate profits that are then taxed again when paid to the corporation's owners. The different tax treatment highlights the fact that, while corporations are legal persons, governments can treat them differently than individuals in specific instances.

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