What is it?
Three Key Types of People
2. Board of Directors is the ruling body of a business. The stockholders elect board members which will have the responsibility of managing the oversight 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 (a few top executives) mostly outside of the business. Directors are often stockholders who have many shares, but they don't have to be stockholders.
3. Officers of a corporation are the top executives who are hired to manage the business (board appoints). Small corporations consist of a president, secretary, and treasurer. Large corporations may have vice presidents in charge of major areas. Titles are shortened to letter such as CEO (chief executive officer) and the head financial officer is the CFO (chief financial officer).
Owners of a corporation.
Board of Directors (boards or directors) is the ruling body of the corporation.
Top executives who are hired to manage the business.
Closed and Open Corporations
Opened Corporations is one that offers its shares of stock fro public sale. Corporations must file a registration statement with the Securities and Exchange Commission containing extensive details about the corporation and the proposed issues of stocks. A condensed version of this registration statement is prospectus.
Preparing the Certificate of Incorporation
Each state has its laws for forming corporations. No federal law exists. To incorporate a business, it is necessary in most states to file a Certificate of Incorporation. The certificate of incorporation calls for basic information about the business (name, purpose, capital stock, and organizers).
Naming the Business: Required by law to have a name that indicates a corporation has been formed. Words or abbreviations are used.
Stating the Purpose: A certificate of incorporation requires a corporation to describe it purpose clearly. For major changes in purpose, a new request must be submitted and approved by the state.
Investing: The certificate of incorporation couldn't be completed until a decision of how to invest their business partnership holding into the corporation.
Paying Incorporation Costs: A new corporation must pay an organization tax, based on the amount of capital stock. New corporations pays a filing fee before the state will issue a charter entitling it as a corporation.
Operating the New Corporation
Handling Voting Rights: Voting stockholders normally have one vote for each owned share. Each stockholder must be noticed about any meeting and if they cannot be in attendance a proxy can be sent. A proxy is a written authorization for someone to vote on behalf of the person signing the proxy
Management Issues for a Corporations
Limited Liability: The owners (stockholders), directors, and managers are not legally liable for the debts of the corporation beyond their investment in the stock shares purchased.
Permanency of Existence: More permanent type of organization than the proprietorship or partnership. It can continue to operate indefinitely, only as long as the term stated in the charter. Death of owner doesn't effect the life; directors and managers can champagne over time without affecting the business.
Ease in Transferring Ownership: Easy to transfer ownership. A stockholder may sell stock to another person and transfer the stock certificate.
Taxation: Subject to more taxes. Some taxes that are unique to a corporation is filing fee, organization fee, annual state tax, and federal income tax. Profits distributed to stockholders as dividends are taxed twice.
Government Regulations and Reports: Cannot do business wherever they want to. Each state will require the corporation to obtain a license and pay fee to do business in the state. Regulations are very extensive. Managers must ensure that the files special reports with the state from which it received it charter. Federal government requires firm whose stock is publicly traded to publish financial data. Greater need for detailed financial records and reports.
Stockholders' Records: is they have many stockholders they have added problems and expenses in communicating with the stockholders and in handling stockholders
Charter Restrictions: Allowed to engage only those activities that are stated in its charter.
Agency Dilemma: Agency Dilemma can occur when an agent pursues their own interest over their employees. Corporate boards must ensure that managers perform their duties for the benefit of the corporation's owners, the stockholders.