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Corporation
The Corporation
The corporation is the most complex of the three business
structures. Therefore, we will discuss only the general
characteristics of the corporation. As defined by chief Justice
Marshall's famous decision in 1819, a corporation is "an
artificial being, invisible, intangible, and existing only in
contemplation of the law."
Formation of the Corporation
A corporation is usually formed by the authority of a state
government. Corporations which do business in more than one state
must comply with the Federal laws regarding interstate commerce
and with the state laws, which may vary considerably.
The procedure ordinarily required to forma corporation is that,
first, subscriptions for capital stock must be taken and a
tentative organization created. Then, approval must be obtained
from the Secretary of State in the state in which the corporation
is to be formed. This approval is in the form of a charter of the
corporation stating the powers and limitations of the particular
enterprise.
ADVANTAGES OF THE CORPORATION
 | Limitations of the
stockholder's liability to a fixed amount of investment.
However, do not confuse corporate liability with appropriate
liability insurance considerations. |
| Ownership is readily
transferable. |
| Separate legal
existence. |
| Stability and relative
permanence of existence.
In the case of illness, death, or other cause for loss of a
principal officer or owner, the corporation continues to exist
and do business. |
| Relative ease of
securing capital in large amounts and from many investors.
Capital may be acquired through the issuance of various stocks
and long term bonds. There is relative ease in securing long
term financing from lending institutions by taking advantage of
corporate assets and often personal assets of stockholders and
principals of guarantors. |
| Delegated authroity.
Centralized control is secured when owners delegate authority to
hired managers, although they are often one and the same. |
| The ability of the
corporation to draw on the expertise and skills of more than one
individual. |
DISADVANTAGES OF THE
CORPORATION
| Activities limited by
the charter and by various laws.
However, some states do allow very broad charters. |
| Manipulation.
Minority stockholders are sometimes exploited. |
| Extensive government
regulations and required local, state, and federal reports. |
| Less incentive if
manager does not share in profits. |
| Expense of forming a
corporation. |
| Double tax - income tax
on corporate net income and on individual salary and dividends.
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