Business, Legal & Accounting Glossary
An entity that is recognised by the law as a legal person.
An Artificial person is an entity that is recognised by the law as a Legal Person i.e. an entity holding legal rights and duties distinct from the individuals whom comprise it.
For example: A registered company is a person in the sense that it can sue or be sued, as well hold property etc. in it’s own name.
A company is not however, an individual or natural person.
An artificial person is sometimes also referred to in Law as a juridical person, fictitious person, legal person, juristic person or moral person.
An artificial person is an entity created by law and given similar legal rights and duties to that of a human being. It can be real or imaginary and for the purpose of legal reasoning is treated more or less as a human being. For example, a corporation, company etc.
A registered company is regarded by the law as a person: albeit an artificial person.
A corporation is seen as a artifical person. The word incorporate is derived from the Latin word corpus, which means “body.” It essentially means formed or added into a body and united by legal enactment.
When a new legal company is created, owners are able to act as one. The new body accepts responsibility for its acts while legally excluding individuals from personal liability. Stakeholders are a term used to describe owners. Not to be confused with a shareholder, who owns stock in a corporation and owns a portion of it. Stakeholders have more than just a vested interest in the stock’s performance.
Corporations have particular rights since they are considered and treated as artificial individuals. These rights include:
Certain privileges, such as the right to marry, have a child, vote, or run for office, are not available to companies. Individuals, on the other hand, are free to exercise their constitutional rights.
Individuals and groups of people are held liable for their own conduct, as are corporations for the actions of their companies and the people they choose to employ. Governments and courts hold companies liable and responsible to function in compliance with statutes and government regulations if they are recognised as artificial persons under the law. These rules come from all levels of government, including the federal, state, and municipal governments, as well as all other relevant jurisdictions.
Corporations have an indefinite life, which means that the sale of shares or the death of a stockholder or employee has no bearing on the corporation’s continued existence.
A company can be sued because it is a separate legal body that operates under its own name. As previously stated, companies, like persons, are held culpable and responsible for obeying and operating within the law. If a company fails to comply or is sued and found guilty, the court may impose fines or even compel the company to dissolve.
Corporations are treated differently than individuals when it comes to tax rates and obligations. A corporation must decide whether it will profit from being taxed as a C corporation or a S corporation once it has been formed.
In other words, a C corporation is considered as if it were a separate taxpayer with its own set of taxes and expenses. If profits are earned, they are dispersed to the shareholders, who are responsible for paying personal income tax. This results in double taxation, which is why many businesses, particularly small ones, do not choose C corporation form.
If a firm qualifies to operate as a S corporation, taxes, profits, and losses are all passed through to shareholders and recorded only on the shareholders’ tax returns, avoiding double taxation.
For tax purposes, not every corporation can opt to be a S corporation. To be classified as a S corporation, they must meet specific requirements. When evaluating whether a firm qualifies for S status, factors such as the number and kind of shareholders, as well as stock classes, are taken into account.
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This glossary post was last updated: 5th January, 2022 | 7,760 Views.