Separate legal entity and limited liability- striking advantages of corporations
Corporations have a separate identity from the identities of their owners and directors. In the eyes of the law, a corporation has its own legal identity. Meaning, the corporation has its legal rights and obligations such as entering into contracts in its own name.
A corporation does not perform its activities under the name of its owners or directors. So, the owners and directors are not accountable for the actions of the corporation. So, the liabilities of the owners and directors are remarkably reduced. Meaning, their personal assets will not be used for settling a debt or any other liability.
If the corporation faces a liability, the owners and directors will not be personally responsible for settling it. In case of a debt, the corporation will clear the debt out of the corporationâ€™s funds. The owners and directors are not liable to pay for the debt out of their pockets. In case the corporation faces legal action from someone, the legal action will not be in the name of the owners and directors. The legal action will be in the name of the corporation. The owners and directors will not face any legal consequences. The owners and directors can only be held liable for their wrongful acts, the ones they perform in their name. So, they have significantly limited liabilities. It is one of the vital advantages of corporations.
Perpetual succession- a vital attribute and advantage of corporations
Corporations can run till the time they are legally existing. Other forms of business organizations, such as sole proprietorship or partnership, cannot operate after the death, insanity, or bankruptcy of its owner or partners. On the other hand, a corporation does not cease to exist if one or all of its directors die, become insane, or get bankrupt. The corporation can continue to exist even if there is a change in the owners of the corporation. The corporation can continue to operate if one or all of its directors decide to quit. So, the death of a director or any other event does not lead to the termination of the corporation. The operations of the corporation do not have to stop. The feature is known as perpetual succession. It is a vital advantage of corporations.
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