by Brad Moore
The Structure of Corporations
These corporations play a powerful role in many countries, including the U.S. They provide employment for millions of people, and have many layers of management. They often provide consumers with many goods and services that are used in an everyday life.
Recent studies have shown that corporate sales of goods and services were more than 20x greater than those from proprietorships, and more than 6x greater than those from partnerships in the United States.
While there are several large corporations such as Ford and Apple, there are small corporations as well.
How are corporations formed and or organized?
To get permission to start a corporation you must obtain a charter, also known as a certificate of incorporation.
A corporation is an sort of an artificial person created by the laws of the state. It can make contracts, borrow money, own property, and sue or be sued. Any act performed by the corporation is in the name of the business. Rather than the person who completed the act for the company.
The owner of a corporation is called a stockholder or shareholder. Ownership of corporations is divided into equal parts known as shares. Thus, thousands of people can own one corporation.
The right an stockholder has over a company includes:
- Transferring ownership to others
- Voting for members of the ruling body of the corporation and other matters brought before the stockholders
- Receiving dividends.
- Buying new shares of stock in proportion to ones current investment
- Share in the net proceeds.
The board of directors is the ruling body of the corporation. The stockholders elect board members. Directors have the management oversight responsibilities to develop plans and policies to guide the corporation. They can also appoint officers whom will carry out the plans.
Officers of a corporation are the top executives who are hired to manage the business. The board appoints them. The officers consist of a president, a secretary and a treasurer. Large corporations sometimes have vice presidents in charge of some major areas. There are also CEOs, and CFOs.
Close and Open Corporations
In most states, a close corporation does not need to make financial activities open to the public. Its stock is not offered for general sale either. However, it must prepare reports for the state from which it got the charter. And it must prepare tax reports for all states in which it operates.
An open corporation is one that offers its shares of stock for public sale. One way to announce the sale of common stock to the public is with newspaper ads. The corporation must file for a registration statement with the SEC (Securities and Exchange Commission).
Management Issues and Benefits for Corporations
There is limited liability of debts of the corporation beyond their investment in the stock shares.
The corporation is a more permanent type of business than the other two types we learned about. It can continue to operate indefinitely, or at least as long as the term stated in the charter.
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. They must obtain a charter through an appropriate state official.
Corporations that have many stockholders have added problems in communication with stockholders records. By law, stockholders must be informed of corporate matters.
A corporation is allowed to engage in only those activities that are stated in the charter.
Charter-the official document through which a state grants the power ti operate as a corporation
Stockholders-the owners of a corporation
Board of Directors-the ruling body of a corporation
Officer-the top executives who are hired to manage a business
Close Corporation-a corporation that does not offer its shares of stock for public sale.
Open Corporation--a corporation that offers its shares of stock for public sale.
Agency Dilemma-occurs when an agent pursues their own interest over their employers.