CHAPTER OBJECTIVES © SOUTH-WESTERN EDUCATIONAL PUBLISHING CORPORATE FORMS OF BUSINESS OWNERSHIP nExplain the basic features of a corporation. nDescribe how a corporation is formed and organized. nList some of the major advantages and disadvantages of the corporate form of business. nDescribe several specialized forms of business organizations. 66

© SOUTH-WESTERN EDUCATIONAL PUBLISHING BASIC FEATURES OF CORPORATIONS- a business owned by a group of people and authorized by the state in which it is located to act as though it were a single person, separate from its owners.CORPORATIONS Charter- (certificate of incorporation) is the official document through which a state grants the power to operate as a corporation (can be costly). nCorporations can make contracts, borrow money, own property, sue or be sue in its own name. ARTIFICIAL PERSON CREATED BY LAW nAny act performed for the corporation by an authorized person, is done in the name of the business. nStockholders – (shareholders) are the owners of a corporation. nThousands of people can own a corporation nStockholders have a number of rights, including the following: nTransfer ownership to others nTo vote for members of the ruling body of the corporation and other matters nTo receive dividends (profits that are distributed to stockholders on a per-share basis) nTo buy new shares of stock in proportion to one’s present investment nTo share in net proceeds should the corporation go out of business. nNOT THE SAME FINANCIAL RESPONSIBILITY AS A PARTNER! No liability beyond investment! nDirectors – is the ruling body of the corporation. nElected by shareholders; develop plans and policies; appoint officers. nOfficers - Top executives who are hired to manage business (EX: Pres; VP; Secretary; Treas) nHired by board of directors.

© SOUTH-WESTERN EDUCATIONAL PUBLISHING FORMATION OF CORPORATIONS nPreparing the certificate of incorporation nMust file a charter with state. nNaming the business nCorporation; Corp; Incorporated; or Inc usually must be used nStating the purpose of the business nClearly state the purpose of the business in writing on Certificate of Incorporation. nFor major changes in purposed, a new request must be submitted and approved by state. nInvesting in the business nHow to invest their partnership holdings in the corporation; division of assets, profits, losses, etc. nCapital Stock- is the general term applied to the shares of ownership of a corporation. nPaying incorporation costs nFees incurred to incorporate business (Charter, organization tax) nOperating the new corporation-after receiving permission from state. nGetting organized nPrepare a balance sheet with Assets, Liabilities, and Owners Equity nHandling voting rights nUsually have 1 vote per share issued. nProxy- written authorization for someone to vote on behalf of the person signing the proxy. nAll shareholders must receive notices of meetings.

© SOUTH-WESTERN EDUCATIONAL PUBLISHING CLOSE AND OPEN CORPORATIONS Close corporation nAlso called closely held corporation nDoes not need to make its financial activities known to the public nMust prepare reports for the state from which it obtained its charter. (Ex: Tax reports) nDoes not offer shares of stock for public sale nJust a few stockholders own it Open corporation nAlso called publicly owned corporation nMust file a registration statement with the SEC containing extensive details about the corporation and the proposed issue of stock. nCondensed version of this registration statement is called a prospectus. nProspectus is a formal summary of the chief features of the business and its stock offering. This helps prospective buyers gain information which will help them decide whether they buy the stock or not. nOffers shares of stock for public sale nLarge number of stockholders

© SOUTH-WESTERN EDUCATIONAL PUBLISHING CORPORATIONS nAvailable sources of capital nLimited liability of stockholders nPermanency of existence nEase in transferring ownership n Double TaxationDouble Taxation nGovernment regulations and reports nStockholders records nCharter restrictions AdvantagesDisadvantages

© SOUTH-WESTERN EDUCATIONAL PUBLISHING SPECIALIZED TYPES OF ORGANIZATIONS nJoint ventures - Ex: 2 contractors agree to connect 2 cities by building a tunnel for cars under river. Money from 1 company; expertise from the other.Joint ventures nVirtual Corporations- PUMA; EBAYVirtual Corporations nLimited liability companies - taxed as a sole proprietorship or partnership. Lower taxes and limited liability are the 2 main advantages. No double taxation nNonprofit corporations - not established as a profit-making enterprise, it does not pay dividends to shareholders. nQuasi-public corporations - EX: PA TURNPIKE; doesn’t attract private investors due to lack of profit potential but government subsidizes the venture. nCooperatives - purpose is to provide their members with cost and profit advantages that they do not otherwise have. Credit unions are examples.