Corporations

Corporation is the most complicated and expensive way to organize a business. Corporations issue shares that regulate participation of each shareholder. In private limited companies only few people own shares and trade them directly, while in public limited companies shareholders can trade shares to anyone who is prepared to buy them through intermediaries.

First, companies invite people to subscribe for shares and prepare registration documents. Second, companies obtain an approval of the authorities to form a corporation. This approval concerns the rights of the corporation and the field of its activities. Any corporation is fully liable for the whole of its debts. If the corporation's assets are not sufficient to meet these debts no action can be taken against shareholders.

Very often people who run a corporation are not its owners (shareholders own the company, managers - not necessarily). Whether the share price goes up or down depends greatly on the performance of the corporation as well as on the public opinion. But if the firm's activities are under close control of authorities, the prices for its will drop long before legal action is taken against the firm. Public opinion can affect the prices almost to the same extent as the efficiency of the company's performance.

The corporate form of business is more flexible instrument for large-scale economic activity than the sole proprietorship or partnerships.

First, because the corporation itself has legal standing, it safeguards its owners, relieving them of individual legal responsibility when they act as agents of the business.

Second, the owners of share have limited liability; they are not responsible for corporate debts.

Third, corporate share is transferable. The corporation is not damaged by the death or disinterest of a particular person. An owner of a share can sell his or her holdings at any time or pass the share along to heirs.

Yet the corporate business organization has drawbacks as well as benefits.

One disadvantage relates to taxation. As a separate legal entity, the corporation must pay taxes. Unlike the treatment of interest on bonds, dividends paid to shareholders are not a tax-deductible business expense for the corporation.

When the corporation passes along profits to individuals in the form of dividends, the individuals are taxed again on these dividends. This is known as "double taxation".

Another cost results from the fact that ownership becomes separated from management. While this makes management easier, some managers are tempted to act more in their own interests than those of the shareholders.

Дата добавления: 2015-10-21