What are they? What are they made up of? How do they work?

What is a Corporation?

A corporation is a business owned by a group of people and authorized by the state. To get permission to form a corporation, the planners need a charter. A charter, or certificate, is a document in which you receive state grants to begin and own a corporation business. Corporations are few in number, but large in size unlike proprietorships, owned by one single person. An example of a corporation in the United States could be Ford, Apple, and Walmart.

Stockholders are one of three key types of people in a corporation. The ownership is divided into equal parts called shares. A person who then buys a share is considered a shareholder. Thousands of people can own a corporation. These people have a number of basic rights which include transferring ownership, voting for members of the corporation, receiving dividends, etc. There is no liability beyond the stockholder's ownership so if the corporation were to fail, the stockholders could only lose the money invested.

The Board of Directors, also shortened to be the directors, are the ruling body of the corporation. They have the responsibility to develop plans and policies to guide the corporation and help officers carry out the specific plans decided upon. The Board of Directors usually is made up of 10 to 25 members, depending on how big the corporation is.

Officers are the top executive who manage the business. These officers consist of a president, vice president, secretary, and treasurer. The president and vice president have the responsibility of marketing, financing, and manufacturing the business. The top officer is the CEO (chief executive officer) and the CFO (chief financial officer) if the head financial chief.

Closed VS Open Corporations

A closed corporation does not offer its shares of stock for public sale. It may also be referred to as a "closely held corporation." Only a few stockholders own a closed corporation. In a lot of states, they do not need to make the companies financial activities known to the public because its stock is generally not publicly sold.

An open corporation is the exact opposite of a closed corporation. It can also be referred to as "publicly pwned corporation." It can be defined as a business that shares stocks for public sale. One way these companies get business and begin selling products is through advertising. The corporation must file a statement with the Securities and Exchange Commission (SEC) that orders detail about the corporation and the amount of stock they invest in. A prospectus, or a summary of features seen in the business that will help the owners decide if they want to buy stock.

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Formation of Corporations

There are a few steps to successfully fulfilling the idea of owning a corporation. The first step includes many management decisions having to be made on exactly how the corporation should be organized. After that, proper legal forms must be analyzed and signed to prepare to send off to the state officers to handle it. If the state approves, they will issue a charter to whatever the new corporation may be.

Preparing an Incorporation (Naming, Purpose, Investing, Costs)

When forming a corporation, no federal laws exist. When signing for a certificate on the business, it needs to provide basic information. Along with a firm name, purpose, capital stock, it requires information about the organizers of the company. When naming a business, it needs to be clear. Simply, understanding words or abbreviations such as Corp., Inc., etc are many commonly used names given. Stating the purpose of the business must be described clearly. If there were ever a major change in purpose, a new request would have to be submitted and approved once again by the state. Usually a new corporation must pay an organization tax when it comes to paying for incorporation costs.

Operating the New Corporation

Owning a corporation is evidenced by issuing capital stock. The stockholders are the owners who elect the board, while the board selects officers and makes the decisions. This is important to the company because it makes it more organized. Voting stockholders usually have one vote for each share that they own. If these people can not attend the mandatory meetings, they have to send a proxy to cover as well as get the important information shared so they know exactly what the company is deciding on. With all of this occurring in the company, it is important that everyone involved is on the same track to success.

Disadvantages of Managing a Corporation

Issues found with proprietorships or partnerships can some times be solved by a corporation. They can obtain money from several sources. They are regulated closely which allows people to invest more willingly than they would in proprietorships and partnerships. One issue for corporations is limited liability. Owners, directors, and managers are not legally liable for debts the corporation has beyond their investments. A corporation is usually more subject to taxes than what are imposed on the other two types of business. Another tax disadvantage is that the profits distributed ti stockholders are taxed twice. They can not do business where ever they please and if the company decides they would like to move to a different location, it has to be certified by the state. A corporation is allowed to engage only with those activities stated in whatever they agreed with in their charter. Sometimes, an agency dilemma can occur. This is when an agent or someone who works for another gets their own interests over the other employees. This is a major disadvantages that takes place in a corporation.

Advantages of Managing a Corporation

There are many advantages to managing a corporation. Corporations employ millions of people, which allows many job opportunities. There are many layers of management which provide consumers with many goods and services that are used daily. It is more of a more permanent type of business style unlike proprietorships or partnerships which some times fail. If a death occurs or is a partner withdraws, it does not affect the life of the corporation. Directors and managers can change over time without it affecting the company.

Restrictions and Agency Dilemmas

A corporation is only allowed to take place in activities that are stated in their legal charter. If the company would like to change something, they must go to the state in order for them to adjust the charter accordingly. An agency dilemma occurs when one agent, or someone who works for the corporation, finds their own interest over employes. Managers may sometimes look at their own interests over stockholders by making purchases that only benefit themselves.