A municipal corporation is a local jurisdiction, such as a city, town, or village, that has been incorporated under the laws of a controlling jurisdiction to enable it to govern itself with regard to local matters. The controlling jurisdiction passes an incorporation statute or other law that allows citizens to vote for the local government to operate as an independent legal entity. Local government officials submit an incorporation document and are issued a charter, memorializing the territory's new status.
Municipal incorporation is authorized by a governing jurisdiction with exclusive legal authority, such as a state or a province. The state or province siphons off some of its own authority to allow a local area to govern itself in matters that pertain to quality of life issues, provided the local government passes no law that conflicts with the laws of the governing jurisdiction. A municipal corporation handles matters such as traffic, business permitting, health and safety ordinances, and empowering magistrates and small claims courts. Many countries around the world use this sort of localization of authority, including the US, Canada, and the UK.
The grant of authority to municipal corporations is called police power. It allows a local government to set up its own police department and pass laws to impose order and regulate the behavior of the citizens within its territory. The rationale behind this grant is the presumption that local governments are better equipped to determine the standards that should apply to ordinary living in a local context than a regional or federal government.
A municipal corporation has the same rights and authority as a regular corporation with status as an independent legal entity. For the incorporated city, town, or village, this means it has the standing to contract with private sector parties for goods and services. It can also raise money from the public by issuing securities, such as municipal bonds, in the same way as a regular corporation. Just as important, private citizens can sue an incorporated local government for a wide range of failings, from negligence in maintaining municipal services and facilities to abuse of power by police or other government officials.
Local governments that organize as a municipal corporation maintain a local budget and can assess taxes to support municipal services. They are often in a better position to negotiate for support from the governing jurisdiction because they have their own elected government hierarchy, such as a mayor and a city council, that have significant influence with the local populace.