Corporations

 90% of all businesses in the U.S. are set up as Corporations  Corporation is a body formed & authorized by law to act as a single person, distinct from its members  40 % of all corporations have less than 5 employees

Ownership  Stockholder (shareholder) is an individual who owns shares of a corporation  Share is a single unit of ownership of a corporation

Advantages of a Corporation  Selling shares enables a corp. to tap into a large source of capital  Liability of each shareholder is limited to the amount of money invested  Continuity of existence – corporation continues to exist regardless of the lifespan of its founders & shareholders  Corporation is a legal entity or legal person created by the state.

Disadvantages of a Corporation  Income is taxed more than once  Company Profits & Dividends (profit share received by shareholders)  Extensive Government regulation  Formation must be followed exactly to avoid legal difficulties  Original founders can lose control or ownership of corporation

Types of Corporations  Public / Private  Profit / Non-Profit  Domestic / Foreign / Alien  Stock / Nonstock

Types of Corporations  Public / Private  Public corporations are those whose stock has been made available for the public to purchase Only For Profit  Private corporations can be profit or nonprofit only those employed or originally invested in the company own stock. (stock company) It can also be a company with no stock and only original investors. (nonstock company)

Types of Corporations  Profit / Non-Profit  Profit companies formed to make $ or profit  Non-Profit companies are formed for charitable or social or religious purposes Private school AIDs Foundation Habitat for Humanity Salt & Light Salvation Army

Types of Corporations  Domestic / Foreign / Alien  Domestic – created in USA  Foreign – created in a different state in USA  Alien – created in another country

Forming A Corporation  Each state has it’s own version of corporate law  If a sole proprietor or partnership wants to change into a corporation – they must start “from scratch” as a corporation. The old business “dies”

Forming A Corporation  3 Main Steps  Choose a name  Complete the Articles of Incorporation  Receive the Certificate of Incorporation  Name: Corporation, Incorporated, Company listed at end of name Apple Corporation Wal-Mart Stores, Incorporated Ford Motor Company  Can not use the name of an existing company or one that is similar.

Articles of Incorporation  Articles of Incorporation an application for incorporation that describes its organization, powers and authority.  Name  Duration  Purpose  Number, Class & Value of corporate shares  Shareholder’s Rights  Address of original registered agent  Names & Signatures of initial directors  Names & Signatures of Incorporation

Certificate of Incorporation  Certificate of Incorporation also called a charter is the official certificate that authorizes a corporation to do biz in a state.  Structure of a Corporation  Board of Directors  Chairman of the Board (think Mr. Monopoly)  Officers (who manage company)

Financing  Sale of stock is most common (shares in company)  Common Stock Gives voting rights in a corporation Provides dividends that are not guaranteed  Preferred Stock No voting rights Guarantees fixed dividends Priority over common stock holders  Sale of bonds also fund (notes issued in return for money borrowed) Accrue (accumulate) interest and must be repaid In event of bankruptcy they are paid before shareholders

Limited Liability Corporation  Features best of a partnership and a corporation  Limited liability to owners  Escapes double taxation  Legal Problems with Incorporation  De jure = in law or lawful company (corp. are de jure when they being and have Cert of Incorp.) De Facto Corp = When a corp does not exist in law but does exist in fact (de facto) Estoppel – When court treats a person or group of people as a corporation. Used when court prevents someone from denying they were acting like a corp.