Corporations
Towers of the Business Landscape
What is a Corporation?
How Do I Get Started?
There are three steps to forming a corporation:
- Making a series of management decisions
- Preparing and sending the proper legal forms to the state
- Approval of the legal forms by the state resulting in a charter from the state
Each state has its own laws for forming a corporation, that's why a certificate of incorporation must be sent to the state requesting permission to form a corporation. The certificate of incorporation contains the basic information about the business, such as: firm name, purpose, capital stock, and information about the organizers. If there are any major changes in the business' purpose, the company must send in a new certificate of incorporation to be improved by the state.
A business' name is usually required by law to indicate clearly that it is a corporation by adding words such as Corporated, Corp., Incorporated, or Inc. at the end. An example would be York, Burton, and Chan, Inc.
A new corporation commonly must pay an organization tax, based on the amount of its capital stock. In addition, there is usually a filing fee before the state will issue a charter to the business allowing it to become a corporation.
One of the first steps in organizing a new corporation is to create a balance sheet that shows capital stock as a claim against assets, or a statement of financial position. Another important issue is to decide how many votes each stockholder has. Commonly, stockholders receive one vote for each stock owned.
Corporations Are Made Up of Three Key Types of People.
Stockholders
Directors
Officers
Stockholders
There are several basic rights each stockholder has:
- Transfer ownership to others
- Vote for the members of the ruling body and on other special matters
- Receive dividends (profits that are distributed to stockholders on a per-share basis.)
- Buy new shares of stock should the corporation issue more shares
- Share in the net proceeds (cash received from the sale of all assets)
Stockholders have no liability beyond the extent of the stockholder's ownership. Therefore, if the corporation goes bankrupt, the stockholder only loses the money he/she invested.
The Board of Directors
The board of directors usually consists of 10 to 25 directors. These directors are usually people from outside the corporation, such as college professors. Commonly, directors are stockholders who own many shares, but this does not have to be the case.
Officers
There Are Two Types of Coporations
A Close Corporation
It must, however, prepare reports for the state it obtained its charter from and prepare reports for tax purposes for all states in which it operates.
An Open Corporation
Advantages
Sources of Capital
Limited Liability
Permanency of Existence
Ease in Transferring Ownership
Disadvantages
Taxation
Government Regulations And Reports
Furthermore, managers must make sure to file special reports with the state from which it received its charter as well as the other states it's conducting business in.