What Does it Mean that Corporations Have 'Perpetual Existence'?
The technical definition of a corporation is "an artificial creation of the law existing as a voluntary chartered association of individuals that has most of the rights and duties of natural persons but with perpetual existence and limited liability." In other words, a corporation exists as a separate legal structure, almost as if it were a person under the law.
But "perpetual existence" in this context is a relative term: the corporation may go out of business, be acquired by another entity, or otherwise cease to exist at some point in the future. The term states that a corporation exists as its own entity, regardless of what happens to the individuals involved in the business. A discussion of the meaning of "perpetual existence" with respect to incorporation follows.
Corporate Formation: A Beginning, With or Without an End
When a business is incorporated, the organizers of the corporation can decide to give it an end date so that when the corporation's mission is complete, it automatically ends. Alternatively -- and more commonly -- the organizers could decide not to specify an end date. When this happens, the corporation exists until its owners, the shareholders, decide to end it. After all, the corporation is owned by the shareholders. For this reason, such a corporation is considered to have perpetual or ever-lasting existence.
So even if the entire executive team and the rank-and-file employees were to quit their jobs at a corporation, the business entity itself would live on and new employees would step in to take their places.
Reasons for Perpetual Existence of Companies
Having perpetual existence has numerous benefits for a corporation. In order to survive, many corporations need investors to fund the corporation's endeavors. If a corporation has perpetual existence, the corporation will continue even if the shareholders, directors, and officers come and go. This means the corporation is a safer, more stable place for investors to put their money and raises the chances that the investors will see a return on their money.
The other benefit to perpetual existence is that it allows the corporation's directors to create a long term plan for profit growth, since they can be sure the corporation will still be there long into the future. This satisfies shareholders because they are assured they will have long term gain, and it helps the corporation's customers because the corporation has the chance to innovate on new products, respond to customer feedback, and build on its expertise.
Finally, perpetual existence benefits the corporation because there is no need to constantly file all the documents that started the organization. Instead, it can carry information from year to year so valuable time and effort will not be wasted duplicating effort.
See FindLaw's Corporations section for additional articles and resources.
Get a Handle on Your Corporation's Legal Matters
When you start a corporation, particularly one without an end date, you want to build it for perpetuity. Despite the advantages listed above, a corporation in perpetual existence also has more legal exposure with every passing year. Make sure you have all of your bases covered by contacting a local business attorney today.