DEFINITION OF A CORPORATION A corporation: an organization of individuals and th

DEFINITION OF A CORPORATION

A corporation: an organization of individuals and their capital which the government has granted limited liability to the members by restricting personal financial liability to the capital invested in the organization in the event of failure. The reason states provide this limited liability is to encourage the risk taking necessary for entrepreneurial activity, and to reduce the power of the financial system from engaging in moral hazard in order to profit immorally. The state, as in all things, functions largely as an insurer of last resort.

—“The modern corporate form of business organization evolved over many centuries. and despite a large body of historical research. its origins are still obscure. why. then, was the corporation invented‘? The early joint-stock companies in England embodied an important change in contractual form. Scholars have rationalized that these corporations evolved in response to an exogeneous increase in the demand for capital by the early foreign trading companies. Our complementary. supply-side hypothesis stresses the advantages that more readily transferable property rights held for the owner-managers of these early companies. These two hypotheses and the historical evidence on their relative importance will help explain the emergence of the corporate form of economic

organization.”—