Chapter 6
Corporate Forms of Business
Ownership
Corporations
Basic Features of a
Corporation
Formation of Corporations
Closed and Open Corporations
Specialized Types of
Organizations
Corporations
Corporations are small in number but large in size
Corporations employ millions of people and provide
consumers with goods and services that they need and
want.
Corporation - business owned by a group of people
and authorized by the state (charter) to act as though it
were a single person.
A corporation can make contracts, borrow money, own
property, sue and be sued.
Formation of Corporations
Certificate of Incorporation
– Name the Business
– State the Purpose of the Business
– Invest in the business - Capital Stock
– Pay Incorporation Costs/Fees
There are three key types of people in
corporations:
– Stockholders
– Directors
– Officers
Stockholders
Stockholders are the owners of the corporation. Ownership
is divided into equal parts called shares. Thousands can
own the corporation
Rights of Stockholders -
– To Transfer Ownership to Others
– To vote for members of the ruling body
– To receive dividends
– To buy new shares of stock
– To share in the net proceeds
There is no liability beyond the extent of the stockholder’s
ownership. If the corporation fails they will only lose the
amount invested. (limited liability)
Ruling Body of Corporations
Directors or Board of Directors - is the
ruling body of the corporation. Board
members are elected by the
stockholders. Often the BOD are the
stockholders which own many shares of
stock.
Usually about 10 to 25 members a few
are usually top execs from the company.
College professors, and executives from
other companies usually are appointed
because of their vast knowledge.
Officers
Officers - are the top executives who are
hired to manage the business. They are
appointed by the BOD. The titles are usually:
– CEO, Chief Executive Officer
– COO, Chief Operating Officer
– CFO, Chief Financial Officer
– CIO, Chief Information Officer
Close vs. Open Corporations
Close Corporation - (a.k.a.. Closely Held
Corporation) - is one that does not offer its
shares of stock for public sale. The partners of
the business own and operate the business.
These businesses do not need to make their
financials public.
Open Corporation - (a.k.a. Publicly Owned
Corporation) is one that offers its shares of stock
for public sale. This type of corporation can raise
large amounts of capital. Must provide
stockholders with Financial Statements.
Advantages of Corporations
Available Sources of
Capital
Limited Liability of
Stockholders
Permanency of
Existence
Ease in Transferring
Ownership
Disadvantages of Corporations
Double Taxation
Government Regulations
& Reports
Extensive Record
Keeping
Stockholders Records
Charter Restrictions
Specialized Types of Organizations
Joint Ventures - an agreement involving two
or more businesses to make/sell a good or
service.
Virtual Corporation – forming temporary
alliances to take advantage of fast-changing
market conditions.
Limited Liability Companies – taxed as sole
proprietorships, limited liability however, certain
rules apply. No more than 35 shareholders
etc.. See rules on page 155.
Specialized Types of
Organizations (cont.’...)
Non-Profit Organizations - an organization that
does not pay taxes and does not exist to make a
profit. They do not pay dividends to stockholders
(Boy Scouts, United Way, Hospitals)
Quasi-Public Corporations – a business that is
important to society but does not have the funds
to attract investors may be run by the local, state
or federal government (Water & Sewer Systems)
