Corporation

Definition

A corporation is a legal entity that is separate from its owners, allowing it to enter contracts, own assets, and incur liabilities independently. This structure provides limited liability protection to its shareholders, meaning their personal assets are generally protected from the corporation's debts and obligations. In the hospitality industry, corporations can range from large hotel chains to restaurant groups, offering a way to raise capital and expand operations while limiting individual risk.

5 Must Know Facts For Your Next Test

1. Corporations can raise capital more easily than other business structures by issuing stocks, allowing for expansion and investment in new projects.
2. In the hospitality industry, corporations often benefit from economies of scale, reducing costs through bulk purchasing and shared services across multiple locations.
3. The corporate structure allows for perpetual existence, meaning the corporation continues to exist even if ownership changes or shareholders die.
4. Corporations are subject to double taxation; they pay taxes on profits at the corporate level, and shareholders pay taxes on dividends received.
5. Many hospitality corporations engage in franchising, allowing them to expand their brand without directly managing all locations.

Review Questions

• How does the structure of a corporation provide benefits over other forms of business ownership in the hospitality industry?
  • The corporate structure offers several advantages in the hospitality industry, including limited liability for shareholders, which protects their personal assets from business debts. Corporations can also raise capital more efficiently through issuing stock, enabling larger investments in properties or expansions. Additionally, corporations benefit from economies of scale that can reduce costs and improve operational efficiencies across multiple locations, making them more competitive.
• Discuss the implications of double taxation for corporations in the hospitality sector and how this affects their financial strategies.
  • Double taxation presents a unique challenge for hospitality corporations as they must pay taxes on their profits at the corporate level before distributing dividends to shareholders, who then also face taxation on those dividends. This can impact financial strategies, pushing corporations to reinvest profits into growth or expansion projects instead of distributing them as dividends. By focusing on reinvestment, corporations can enhance their market presence and potentially achieve long-term growth despite the tax implications.
• Evaluate the role of public corporations in shaping trends within the hospitality industry and their influence on smaller businesses.
  • Public corporations play a significant role in shaping trends within the hospitality industry by setting standards for service quality, innovation, and customer experience due to their extensive resources and visibility. Their influence often leads to shifts in consumer expectations that smaller businesses must adapt to remain competitive. Furthermore, public corporations can drive industry practices related to sustainability and technology adoption, encouraging smaller establishments to follow suit in order to attract customers who value those initiatives.

Related terms

Shareholder: An individual or entity that owns shares in a corporation, entitled to a portion of the profits and certain rights within the company.

Limited Liability: A legal structure that protects an owner’s personal assets from being used to satisfy the debts and obligations of the business.

Public Corporation: A corporation whose shares are publicly traded on stock exchanges, allowing it to raise capital from a wide range of investors.