1. September 26, 2011 What is a Corporation? Faisal AlSager MGT 427 - Corporate Governance

2. Objectives ✤ To be aware of different definitions of a corporation ✤ To recognize the characteristics making corporations vital and appealing, and the purposes of them

3. Several Definitions 1 ✤ “A large company or group of companies acting together as a single organization. In Britain, a large company or a public organization.” FT.com ✤ “.. an instrument through which capital is assembled for the activities of producing and distributing goods and services and making investments.” Melvin Aron Eisenberg ✤ “.. an artificial being, invisible, intangible, and existing only in contemplation of law. [Among its properties] are immortality, and, if the expression be allowed, individuality; properties by which a perpetual succession of many persons are considered the same, and may act as a single individual.” Chief Justice John Marshall

4. Several Definitions 2 ✤ “A body of persons granted a charter legally recognizing them as a separate entity having its own rights, privileges, and liabilities distinct from those of its members.” American Heritage Dictionary ✤ “An artificial person or legal entity created by, or under the authority of, laws of a state... The corporation is distinct from the individuals who comprise it.” Black’s Law Dictionary, 6th edn., 1990 ✤ “An ingenious device for obtaining individual profit without individual responsibility.” Ambrose Bierce, The Devil’s Dictionary

5. A Detailed Definition ✤ A corporation is a mechanism established to allow different parties to contribute capital, expertise, and labor, for the maximum benefit of all of them. The investor gets the chance to participate in the profits of the enterprise without taking responsibility for the operations. The management get the chance to run the company without taking the responsibility for personally providing the funds. In order to make both of these possible, shareholders have limited liability and limited involvement in the company’s affairs. That involvement includes, at least in theory, the right to elect directors and the fiduciary obligation of directors and management to protect their interests.

6. Stakeholders (or constituents) ✤ Directors ✤ Managers ✤ Employees ✤ Shareholders ✤ Customers ✤ Creditors ✤ Suppliers ✤ Members of the community and government

7. Corporate Governance ✤ The study of corporate governance is the study of the connection of the relationships between the organization and its stakeholders to the corporation and to one another.

8. Clark’s Characteristics ✤ The four characteristics essential to the vitality and appeal of the corporate form are: 1. limited liability for investor; 2. free transferability of investor interests; 3. legal personality (entity-attributable powers, life span, and purpose); and 4. centralized management.

9. The Purpose of a Corporation ✤ Human Satisfaction: success, security, and wealth ✤ Social Structure: lasting and resilient creating wealth through goods and services ✤ Efficiency and Efficacy: translation of ideas into products; human ingenuity into bricks, mortar, and equipment; and savings into “growth stocks” ✤ Ubiquity and Flexibility: no boundaries; continues despite death or retirement of its highest officers ✤ Identity: life, citizenship of its own, with attendant rights and powers

10. References ✤ FT.com ✤ Corporate Governance (4th Edition): Monks, R. and Minow, N. 2004. (Publisher: Wiley-Blackwell)