Types of Corporations

A corporation is a business owned by a group of people and is authorized by the state in which it is located to act as though it were a single person, separate from its owners. There are two different types of corporations that one can fall into. There's a close corporation that does not offer its shares of stocks for the public sale. Then there's an open corporation that offers its shares of stock for the public sale.

Three key people in a Corporation

Three key people of a Corporation

Stockholders are the owners of a corporation and their ownership is divided equally among how many people own the business, these are known as shares. If one person buys a share of the business then that makes them a stockholder. Stockholders have a number of basic rights including transfer ownership to others, voting for members of the ruling body, the receiving of dividends (profits that are distributed to stockholders on a per-share basis), the buying of new shares of stock in the corporation, and the share in net proceeds should the corporation go out of business.

Directors, however, are a little lower than the stockholders but are still needed when it comes to owning a corporation. The directors are appointed and voted on by the stockholders to see who fits the position well. These directors are the managing oversight of the business owning up to responsibilities such as developing plans and policies for the business as well as appoint officers to carry out these plans. There are usually around 10 to 25 directors depending on the size of the corporation. They are often from outside the corporation and are usually executives from other businesses or nonprofit organizations.

Officers of a corporation consist of a president, a secretary, and a treasurer. If a corporation is large enough there can be a vice president in charge of certain areas (i.e marketing, finance, and manufacturing). The top officer of a corporation is known as the CEO (chief executive officer) and the head financial officer if known as the CFO (chief financial officer).

Certificate of Incorporation

A certificate of incorporation is needed when developing a new business. Most states require this certificate in order for the owner to open shop in that state. The certificate of incorporation calls for basic information about the business including the firm name, purpose, capital stock, and information about the organizers. The firm name of the business has to include words or abbreviations (i.e Corporation, Corp., Incorporated, or Inc. The purpose is as simple as it sounds; however, if the owners of the corporation decides to make major changes in the purpose, they have to issue a new request to be submitted and approved by the state in order to change their purpose.


When investing into a corporation there's a lot to think about. What if the corporation goes into debt and you have to pay for the difference from what they started out with to what their total profit earnings are? If one invests in a business and cannot pay the difference allotted then the organizers can sell the unissued shares to raise the funds needed to expand the business and keep it from going into debt.
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Incorporation Costs

When starting a new corporation there are certain things you will be required to pay. For instance, when beginning a new corporation there is an organization tax you have to pay for based on the amount of your capital stock from previous years as a partnership. You will also be required to pay a filing fee before the state will issue you a charter entitling the business can operate as a corporation.

Key Components to a Corporation

Organization in a corporation requires people who are well endowed to making a corporation successful. If one owner prepares a balance sheet of their initial costs and how much they have made a year another owner can create a spreadsheet indicating the working hours of each employee in the business or of each key figure of the corporation.

Ownership of a corporation requires people who are willing to split the shares and stock of that said corporation. Let's say one corporation has three stockholders. These stockholders are then owning the business, but sharing the stock market of the business equally. Each of the stockholders are in charge of electing the officers and directors.

Voting rights in a corporation are somewhat similar to when we vote for a new president or state official. Each of the owners have a certain amount of votes they can use if they think that certain thing or person can help make the business a success. When one stockholder cannot make it to one of the meetings then they can send a proxy in their favor. A proxy is a written authorization for someone to vote on behalf of the person signing the proxy. The proxy representing the stockholder who is unable to make it can be submitted through phone, Internet,or mail.

Management Issues

A corporation can help solve some of the issues found within a proprietorship and partnership. However, corporations also have their own management issues. These corporations can obtain money from a number of sources. For examples, the corporation can obtain money from the sale of shares to stockholders. In a few situations, the owners (stockholders), directors, and managers of the corporation are not legally responsible for any debts of the corporation beyond their investment in the stock shares purchased.

These corporations have been said to continue to operate indefinitely, or as long as the term stated in the charter. Even though a corporation has its ups, they also have their downs. The corporation is subject to more taxes than a proprietorship or partnership may have. In relation to the many taxes that corporations face (ie. filing taxes, organization taxes, annual state tax, and federal income tax), they also face a double taxation on the profits that are distributed to stockholders as dividends.

Corporations also face government regulations and reports. Regulation of corporations by states and the federal government can be extensive at times. Managers are in charge of making sure he corporation files special reports with the state as well as with other states in which they conduct their business. Federal government; however, requires that firms whose stock is publicly traded to publish financial data.