The Structure of Corporations

By: Chris Hutchins

Basic Features

A corporation is a business owned by a group of people and authorized by the state in which it is located to act as though it were a single person, separate from owners. To get permission to form a corporation, organizers must obtain a charter.

A charter is the official document through which a state grants the power to operate as a corporation.

Officers

The officers of a corporation are the top executives who are hired to manage the business. The officers of a small corporation consist of a president, a secretary, and a treasurer. Top officers is called a CEO(Chief Executive Officer) and the head financial officer is the CFO(Chief Financial Officer).

Close and Open Corporations

A Close corporation is one that does not offer its shares of stock for pubic sale. Just a few stockholders own it, some of them may help run the business in the same manner that partners operate a business. Close corporation does not need to make its financial activities known to the public. Its stock-not offered for general sale.

A Open corporation-one that offers its shares of stock for public sale, The corporation must file a registration statement with the Securities and Exchange Commission- containing extensive details about the corporation and the proposed issue of stock.


A prospectus is a formal summary of the chief features of the business and its stock offering.

Stating The Purpose Of The Business

A certificate of incorporation requires a corporation to describe its purpose clearly. It allows the corporation to expand into new food lines but not allowed for corporations to start nonfood operations.

Handing Voting Rights

The owners agreed that each owner will have 2,217 votes on matters arising in the meeting of the stockholders. Voting stockholders usually have one vote for each shared owned. Even stockholders with just one share must receive notices of meeting. If stockholders cannot attend the meetings personally, they can be represented through a proxy that can be submitted by internet, phone, or mail. A proxy is a written authorization for someone to vote on behalf of the person signing the proxy. Corporations often enclose a proxy form with the letter that announces a stockholders' meeting.

Source of Capital

One source- is the sale of shares to stockholders

People usually invest more willingly than in proprietorships and partnerships. Find borrowing large sums of money less of a problem than do proprietorships or partnerships.

Taxation

The corporation is usually subject to more taxes than are imposed on the proprietorship and the partnership. Some taxes are unique corporation are a filling fee, which is payable on application for a charter; an organization tax, which is based on the amount of authorized capital stock; an annual state tax, based on the profits; and a federal income tax. Tax disadvantage on corporations is that profits distributed to stockholders as dividends are taxed twice. This double taxation occurs in two steps.

Charter Restrictions

A corporation is allowed to engage only in those activities that are started in its charter. The organizers would have to go to the state to obtain a new charter or change the old one.

Agency Dilemma

An agency dilemma can occur when an agent, or someone who works for another, pursues their own interest over their employers. Managers could try to persuade the board of directors to increase management pay, diminishing returns to stockholders. Corporations boards must endure that managers perform their duties for the benefit of the corporation owners, the stockholders.