Corporation

A business owned by a group of people.

Features

  • Charter - The official document through which a state grants the power to operate as a corporation.
  • Stockholder - Ownership is divided into equal known as shares and a person who buys a share becomes a stockholder.
  • Board of Directors - The ruling body of the corporation. Typically around 10-25 people.
  • Officers - The top executives who are hired to manage the business.

Open vs Closed

A closed corporation does not offer its shares of stock for public sale, while an open corporation does offer its shares of stock for public sale.

More Components

  • A business is usually required by law to have a name that indicates clearly that a corporation has been formed.
  • A certificate of incorporation requires a corporation to describe its purpose clearly.
  • You must figure out how to invest your money into the corporation.
  • A new corporation usually pays an organization tax, based on the amount of its capital stock.
  • Organization is key.
  • A proxy is a written authorization for someone to vote on behalf of the person signing the proxy.
  • The owners, directors, and managers are not legally liable for the debts of the corporation beyond their investment in the stock shares purchased.

Important Info

  • The corporation is a more permanent type of organization than the proprietorship or the partnership.
  • A stockholder may sell stock to another person and transfer the stock certificate to the new owner.
  • The corporation is usually subject to more taxes than are imposed on the proprietorship and the partnership.
  • To form a corporation, an application for a charter must be submitted to the appropriate state official.
  • A corporation is allowed to engage only in those activities that are stated in the charter.
  • An agency dilemma can occur when an agent pursues their own interest over their employees.