CHAPTER

OBJECTIVESOBJECTIVES

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CORPORATE FORMS OF BUSINESS OWNERSHIP

Explain the basic features of a corporation. Describe how a corporation is formed and organized. List some of the major advantages and disadvantages of the

corporate form of business. Describe several specialized forms of business

organizations.

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BASIC FEATURESOF CORPORATIONS- a business owned by a group of people and authorized by the state in which it is located to act as though it were a single person, separate from its owners.

Charter- (certificate of incorporation) is the official document through which a state grants the power to operate as a corporation (can be costly). Corporations can make contracts, borrow money, own property, sue or be sue in its own

name. ARTIFICIAL PERSON CREATED BY LAW Any act performed for the corporation by an authorized person, is done in the name of the

business.

Stockholders – (shareholders) are the owners of a corporation. Thousands of people can own a corporation Stockholders have a number of rights, including the following:

Transfer ownership to others To vote for members of the ruling body of the corporation and other matters To receive dividends (profits that are distributed to stockholders on a per-

share basis) To buy new shares of stock in proportion to one’s present investment To share in net proceeds should the corporation go out of business. NOT THE SAME FINANCIAL RESPONSIBILITY AS A PARTNER! No liability

beyond investment!

Directors – is the ruling body of the corporation. Elected by shareholders; develop plans and policies; appoint officers.

Officers - Top executives who are hired to manage business (EX: Pres; VP; Secretary; Treas)

Hired by board of directors.

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FORMATION OF CORPORATIONS Preparing the certificate of incorporation

Must file a charter with state. Naming the business

Corporation; Corp; Incorporated; or Inc usually must be used Stating the purpose of the business

Clearly state the purpose of the business in writing on Certificate of Incorporation. For major changes in purposed, a new request must be submitted and approved by

state. Investing in the business

How to invest their partnership holdings in the corporation; division of assets, profits, losses, etc.

Capital Stock- is the general term applied to the shares of ownership of a corporation. Paying incorporation costs

Fees incurred to incorporate business (Charter, organization tax) Operating the new corporation-after receiving permission from state.

Getting organized Prepare a balance sheet with Assets, Liabilities, and Owners Equity

Handling voting rights Usually have 1 vote per share issued. Proxy- written authorization for someone to vote on behalf of the person signing the

proxy. All shareholders must receive notices of meetings.

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CLOSE AND OPEN CORPORATIONSClose corporation Also called closely held corporation

Does not need to make its financial activities known to the public Must prepare reports for the state from which it obtained its charter. (Ex: Tax

reports)

Does not offer shares of stock for public sale Just a few stockholders own it

Open corporation Also called publicly owned corporation

Must file a registration statement with the SEC containing extensive details about the corporation and the proposed issue of stock.

Condensed version of this registration statement is called a prospectus. Prospectus is a formal summary of the chief features of the business and its stock

offering. This helps prospective buyers gain information which will help them decide whether they buy the stock or not.

Offers shares of stock for public sale Large number of stockholders

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CORPORATIONS

Available sources of capital Limited liability of

stockholders Permanency of existence Ease in transferring

ownership

Double Taxation Government

regulations and reports

Stockholders records

Charter restrictions

Advantages Disadvantages

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SPECIALIZED TYPESOF ORGANIZATIONS Joint ventures- Ex: 2 contractors agree to connect 2 cities by

building a tunnel for cars under river. Money from 1 company; expertise from the other.

Virtual Corporations- PUMA; EBAY

Limited liability companies- taxed as a sole proprietorship or partnership. Lower taxes and limited liability are the 2 main advantages. No double taxation

Nonprofit corporations- not established as a profit-making enterprise, it does not pay dividends to shareholders.

Quasi-public corporations- EX: PA TURNPIKE; doesn’t attract private investors due to lack of profit potential but government subsidizes the venture.

Cooperatives- purpose is to provide their members with cost and profit advantages that they do not otherwise have. Credit unions are examples.