Advantages of Corporations
Unlike a partnership or sole proprietorship, shareholders of a modern business corporation have limited liability for the corporation's debts and obligations. As a result, their losses cannot exceed the amount which they contributed to the corporation as dues or payment for shares. This enables corporations to socialize their costs. Socializing a cost is to spread it to society in general. The economic rationale for this is that it allows anonymous trading in the shares of the corporation by eliminating the corporation's creditors as a stakeholder in such a transaction. Without limited liability, a creditor would probably not allow any share to be sold to a buyer at least as creditworthy as the seller.
Limited liability reduces the amount that a shareholder can lose in a company so it allows corporations to raise large amounts of finance for their enterprises by combining funds from many stock owners. This increases the attraction to potential shareholders and increases both the number of willing shareholders and the amount they are likely to invest.
However, some jurisdictions also permit another type of corporation, in which shareholders' liability is unlimited, for example the unlimited liability corporation in two provinces of Canada, and the unlimited company in the United Kingdom.
Another advantage is that the assets and structure of the corporation may continue beyond the lifetimes of its shareholders and bondholders. This allows stability and the accumulation of capital, which is then available for investment in larger and longer-lasting projects than if the corporate assets were subject to dissolution and distribution. This was also important in medieval times, when land donated to the Church (a corporation) would not generate the feudal fees that a lord could claim upon a landholder's death. However, a corporation can be dissolved by a government authority, putting an end to its existence as a legal entity. But this usually only happens if the company breaks the law. For example, it it fails to meet annual filing requirements or, in certain circumstances, if the company requests dissolution.
Welcoming Facebook
Facebook was able to raise $16 billion when it decided to offer shares to the public.