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 onceCompany 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. NameDurationPurposeNumber, Class & Value of corporate sharesShareholder’s RightsAddress of original registered agentNames & Signatures of initial directorsNames & 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 CorporationBoard of DirectorsChairman 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.