Corporations

A corporation is legally chartered enterprise with most legal rights of

a person, including the right to conduct business, to own and sell prop-

erty, to borrow money, and to sue or be sued. A corporation have five

important characteristics:

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1. It is an artificial person with specific legal standing.

2. It has an unlimited life span.

3. It is empowered by the state to carry on a specific line of business.

4. It is owned by shareholders (stockholders).

5. Its shareholders are usually liable for damages only to the extent of

their holdings.

The relationship between the company and its shareholders, or own-

ers, is central to the enormous strength of the modern corporation. Since

ownership and management are separate, the owners may get rid of the

managers (in theory, at least), if the owners vote to do so. Conversely,

because shares of the company (known as stock) may be bequeathed or

sold to someone else, the company’s ownership may change drastically

over time while the company and its management remain intact. This

unlimited life span gives a corporation unlimited potential for growth.

Types of corporations. The giant organizations are almost all public

corporations – that is, companies owned by large numbers of public in-

vestors. These investors buy stock on the open market, thereby providing

public corporations with large amounts of permanent capital. In return,

the shareholders receive the chance to share in the profits if the corpora-

tion succeeds.

But not all corporations sell shares on the open market. Private cor-

porations (also known as closely held corporations) withhold their stock

from public sale, preferring to finance any expansion out of their own

earnings or to borrow from some other source. Thus, a private corpo-

ration’s executives who control the majority of the stock are assured of

complete control over their operations and are protected from being

bought out by people who might dismantle the company.

Some small corporations, known as S corporations (or subchapter S

corporations), are even more closely held. These corporations have no

more than 35 shareholders. They have one chief advantage: they may be

taxed like partnerships, at rates lower than other corporations.

Not all corporations are profit-making institutions. There are many

non-profit corporations as well, some owned by the government and

others formed to pursue noneconomic goals in such areas as social ser-

vice and the arts.

Finally, not all corporations are independent entities. Subsidiary cor-

porations are partially or wholly owned by another corporation known

as a parent company, which supervises the operations of the subsidiary.

A holding company is a special type of parent company that exercises

little operating control over the subsidiary, merely “holding” its stock as

an investment.

Advantages of corporations. No other form of business ownership

can match the success of the corporation in bringing together money,

resources, and talent; in accumulating assets; and in creating wealth.

The corporation has certain significant advantages that make it the best

vehicle for accomplishing these tasks, a main one being its limited liabil-

ity. Although a corporate entity can assume tremendous liabilities, it is

the corporation that is liable rather than any of the private shareholders.

Another important advantage is liquidity, meaning that an investment

in a publicly held corporation can easily be converted into cash through

trade on the open market. A corporation’s unlimited life span is another

important advantage. It allows a firm to make long-range plans and to

recruit, train, and motivate the best employees.

Disadvantages of corporations. Corporations are not without some dis-

advantages. One is their public disclosure requirements. Publicly owned

companies are required by the government to follow certain rules and

to publish information about their finances and operations. These re-

porting requirements put corporate managers under pressure to achieve

short-term growth and earnings targets in order to satisfy shareholders

and attract potential investors. The cost of incorporation are burden-

some also. In addition to charter fees and lawyers’ fees, the cost of mak-

ing a public stock offering may be very high. Although the tax rates for

small corporations have declined in recent years, incorporated business-

es still suffer from relatively high taxes when compared with unincorpo-

rated businesses. Some large corporations claim that they are taxed too

heavily and that society would benefit if companies could retain more

of their earnings for reinvestment. Many critics of business counter that

corporations have evaded their social responsibility by employing vari-

ous tax-minimization techniques, such as doing business in Panama, the

Bahamas, and Bermuda, which impose no income taxes.

1. Who owns a company?

2. What characteristics has a corporation? Speak on each.

3. What are the main types of corporations?

4. Explain the difference between an open and a closed corporation.

5. Describe some of the advantages and disadvantages of a corporation.

Text 5

Read the following text, make a plan and use it while speaking on multinationals.