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Corporation. A business corporation is an organization created by law that allows people to associate together for the purpose of making profit
A business corporation is an organization created by law that allows people to associate together for the purpose of making profit. It is the dominant form of American business because it makes it possible to gather large amounts of capital together.
Before a corporation may do business, it must apply for and receive a charter from the state. The state must approve the articles of incorporation, which describe the basic purpose and structure of the proposed corporation.
The stockholders usually meet once a year to elect directors and to carry on other important business. Each share of stock entitles its owner to one vote. A stockholder who can’t attend the meeting can legally authorize another to vote his or her shares by proxy.
Management of a corporation consists of the board of directors who decide corporate policy, and the officers, who carry on the daily operations. The board is elected by the stockholders, and the officers are appointed by the board.
Some specific duties of the board of directors are to declare dividends, authorize contracts, decide on executive salaries, and arrange major loans with banks. Management's main means of reporting the corporation’s financial position and results of operations is its annual report.
Corporations are also known as joint-stock companies because they are jointly owned by different persons who receive shares of stock in exchange for an investment of money in the company. Shares represent fractions of the company's assets such as cash, equipment, real estate, manufactured goods, etc.
Though the corporation is more difficult and expensive to organize than other business forms, it has a number of advantages. First, investors can limit their personal liability to the amount of money they have invested, thus, if the corporation goes bankrupt, they can lose no more than they have put in. Second, money to operate the business is obtained by the sale of stocks to the general public and this enables the corporation to exist independently of its owners. The corporation also finds it easier to borrow money from banks and it is also a successful means for attracting large amounts of capital and investing the latter in plants, modern equipment and expensive research. Third, salaries large corporations can offer to managers and specialists are high and that allows corporations to hire professional and talented employees. In addition, it allows centralized authority, responsibility and professional management.
The great drawback of the corporate form of ownership is double taxation of profits which means that business corporations must pay taxes on their net income, and then the shareholders are to pay taxes on the income they receive as dividends on their stock. Different kinds of reports to be filed to federal and state regulatory agencies about the corporation activity can also be considered as another disadvantage of this business form. However, in terms of size and influence it is the corporation that has become the dominant business form existing in most countries with free market economy. In addition, separation of ownership and control may allow management to make harmful decisions.
The privately owned business corporation is one type of corporation. There are some other types too. Educational, religious, charitable institutions can also incorporate. Usually such corporation doesn’t issue stock and is nonprofit. If there is a profit it is reinvested in the institution rather than distributed to private stockholders.
In some western countries, cities, states, federal government and special agencies can establish governmental corporations. A few examples of these governmental corporations are state universities, state hospitals and city owned utilities. Governmental corporations are nonprofit as a rule and usually they don’t issue stock certificates.
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