Corporations

By: Calli Hamilton

Basic Features

A corporation is a business owned by a group of people and authorized by that state in which it is located to act as though it were a single person, separate from its owners. A charter is the official document through which a state grants the power to operate as a corporation.

The Structure of Corporations

Although proprietorship are many in number, they are generally small in size, while corporations are few in number, but generally large in size. Corporations employee millions of people, have many layers of management, and provide consumers with many of the goods and services they use daily.

Stockholders

The owners of the corporation are stockholders. Ownership is divided into equal parts called shares. A person who buys one share becomes a stockholder. Therefore, thousands of people can own a corporation. These people have several basic rights such as: transfer ownership to others, vote members of the ruling body of the corporation and on other special matter, receive dividends, buy new shares of stock, and share in the net proceeds.

Directors

The board of directors is the ruling body of the corporation. Directors have the management oversight responsibilities to develop plans and policies to guide the corporation as well as appoint officers to carry out the plans. In large firms, boards generally consist of 10-25 directors.

Officers

The officers of a corporation are the top executives who are hired to manage the business. The officers of a small corporation often consist of a resident, a secretary, and a treasurer. In addition, large corporations may have vice presidents, in charge of major areas. the titles of these officers are often shortened, for example, CEO.

Open and Close Corporations

An open corporation is one that offers its shares of stock for the public sale. The corporation must file a registration statement with the Securities and Exchange Commission (SEC) containing extensive details about the corporation and the proposed issue of stock. A condensed version of this registration statement, called a prospectus, must be furnished to each prospective buyer of newly offered stocks (or bonds). A prospectus is a formal summary of the chief features of the business and its stock offering.


A closed corporation is one that does not offer its shares of stock for public sale. Just a few stockholders own it; some of them may help run the business in the same manner that partners operate a business.

Management Issues

The corporation can help to solve some of the management issues found with proprietorship and partnerships.


A corporation can obtain money from several sources. One of those sources is the sale of shares to stockholders.


Except in a few situations, directors, and managers are not legally liable for the debts of the corporation beyond their investment in the stock shares purchased.


The corporation is usually subject to more taxes than are imposed on the proprietorship and the partnership.


A corporation cannot do business wherever it pleases. to form a corporation, an application fur the charter must be submitted to the appropriate state official, usually the secretary of the state.

Agency Dilemma

An agency dilemma can offer when an agent, or someone who works for another, purchases their own interest over their employees. Managers could try to persuade the board of directors to increase management pay, diminishing returns of stockholders. Corporate bonds must ensure that managers perform their duties for the benefit of the corporation owners.