Lesson 3 of 6 · 13 min
Key features of corporate issuers
A corporation is its own legal person, owned by shareholders with limited liability who delegate running it to a board and managers; that separation is what lets it raise equity and debt from a vast pool of investors.
In short
- A corporation is a separate legal entity, created by filing articles of incorporation; it can sign contracts, employ people, sue and be sued, borrow, lend, invest and pay tax.
- It is subject to the rules of each jurisdiction where it is incorporated, does business and raises finance, covering registration, reporting and capital market activity.
- Owner-manager separation: shareholders elect the board, which appoints executives such as the CEO. Shareholders change things mainly by voting to replace directors.
- Limited liability: a shareholder can lose at most what was invested (the share price can fall to zero, not below). Risk and return are shared in proportion to shares held unless the charter says otherwise.
- Corporations finance themselves with equity (issuing shares or retaining profits; owners receive dividends) and debt (loans, bonds, leases repaid with interest).
- Economic profit is net income above the owners' required return on equity; the 'economic' balance sheet adds hard-to-measure assets and obligations such as employee skills and customer relationships.
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