Corporation
A business corporation is an institution established for the purpose of
making profit. It is operated by individuals. Their shares of ownership
are represented by stock certificates. A person who owns a stock
certificate is called a stock-holder.
There are several advantages of the corporate form of ownership. The
first is the ability to attract financial resources. The next advantage is
that a corporation attracts a large amount of capital it can invest it in
plants, equipment and research. And the third advantage is that a
corporation can offer higher salaries and thus attract talented managers
and specialists.
The privately owned business corporation is one type of corporation.
There are some other types too. Educational, religions, charitable institu-
tions can also incorporate. Usually such corporation does not 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 spe-
cial agencies can establish governmental corporations. A few examples
of these governmental corporations are state hospitals and city owned
utilities. Governmental corporations are non-profit as a rule and usually
they do not issue stock certificates.
ADVANTAGES DISADVANTAGES
Owners of the corpora-
tion – stockholders – do
Profits and
not have to devote time
losses
to the company to make
money on their invest-
ment
The corporation, and not
its stockholders, is re-
sponsible for its debts. If
a corporation goes bank-
Liability rupt or is sued, creditors
cannot normally take
personal property from
stockholders to pay debts.
This is known as limited
liability, and may be the
major advantage of the
corporate form of business
Responsibility for running Decision making can be
a corporation is divided slow and complicated be-
among many people. cause so many levels of
Decisions are made at management are involved.
many levels by Also, the interests of those
individuals trained in running the corporation,
Management specific areas, such as who may not be stock-
sales, production, and so holders, are not always the
on. This allows a same as those of the
corporation to handle stockholders, who often
large and complicated seek an immediate return
opera- tions and to carry on investment
on many types of
business activities
at the same time
The federal government
and some state and local
governments tax corporate
profits. The profits that are
Taxes paid to stockholders as
dividends are again taxed
as income to those indi-
viduals. Some states also
tax corporate property
An individual may feel- Individual stockholders
Personal
satisfaction simply in own- have little or no say in
satisfaction
ing a part of a corporation how a corporation is run
Corporations draw on
Financing resources of investors
growth and may issue stock at
any time to raise capital
The life of a corporation
can continue indefinitely
Life of the
if it remains profitable. Its
business
life is not affected by the
death of stockholders
Tasks
Answer the questions.
1. Is it difficult to decide what legal form of business to choose? Why?
2. What is a sole proprietorship responsible for?
3. What kind of businessmen does the sole proprietorship suit?
4. Why may a sole proprietorship decide to form a partnership?
5. May any business have the form of partnership?
6. What advantages are common both to sole trader and partnership?
7. What types of partnership are mentioned in the text?
8. What is represented by stock-certificate?
9. What person is called a stock-holder?
10. What’s the difference between the privately owned business corporation and non
profit corporation?
11. What do nonprofit corporations do with their profit if they have it?
12. What examples of governmental corporations are given in the text?
