Corporation

A corporation is chartered by the state in which it has headquarters. It is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages of a Corporation

1. Shareholders have limited liability for the corporation's debts or judgments against the corporations.

2. Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)

3. Corporations can raise additional funds through the sale of stock.

Disadvantages of a Corporation

1. The process of incorporation requires more time and money than other forms of organization.

2. Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.

3. Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible form business income, thus this income can be taxed twice.

Main features a Corporation:

(+) Shareholders have limited liability

(+) Can raise funds through sale of stock

(+) Life of business is unlimited (continuity of life)

(-) To incorporate a firm takes time and money

(-) May result in higher overall taxes

1. Answer the questions:

1. What is a corporation?

2. Who are the owners of a corporation?

3. What is necessary to form a corporation?

4. Who oversees the major policies and decisions?

5. What are the advantages and disadvantages of corporations?

2. Short Revision and Self – Control of the Main Statements

Close the right-hand side of the page with a sheet of paper and move it downwards answering the questions and checking yourself:

Questions	Answers
1. What is a 'sole trader'?	The smallest type of business organisation in the 'sole trader'
2. What is partnership?	When a 'sole trader' takes a partner they set up a partnership
3. What are public limited companies?	Large companies will sell shares to the general public are called public limited companies
4. Why has every business to be managed?	Businessmen have to handle a lot of problems: find supplies, new materials, capital items, consumable items, marketing of the product, advertising, etc.

Monopoly and public policy

There appears to be a generally held opinion that monopoly is against the public interest. The case against monopoly is based mainly on the assumptions we have already outlined, namely, higher prices, abnormal profits (i.e. a redistribution of income from consumers to produc­ers), price discrimination, and the lack of competition which leads to inefficiency and a slower rate of technical progress.

For centuries the common law in Britain has held that 'agreements in restraint of trade' are against the public inter­est, but the courts have tended to interpret this law very leniently. Legislation specifically designed to deal with monopoly and monopolistic practices was not introduced in the UK until 1948. In spite of a generally unfavourable pub­lic opinion, the legislation has not made monopolies illegal (as was the case in the USA). It has been recognised that there might be circumstances where monopoly organisation could be justified. For example, monopoly in the home mar­ket might be necessary in order to obtain important economies of scale which, in turn, would lead to lower-priced exports. Firms which operate agreements to restrict competition between themselves might, as a consequence, collaborate in cost-reducing research and development. An agreement to restrict competition might be necessary in order to ensure a domestic source of supply. For example, an efficient plant designed to produce some synthetic fibre might have to be very large and require an enormous outlay on capital equipment. A firm may hesitate to embark on such an investment unless it can be guaranteed the whole of the home market. If a competitor were allowed to operate in the market, it would probably mean two large plants each work­ing well below capacity with much higher costs per unit, lower profitability, and reduced prospects in export markets. It is possibilities such as these which have persuaded legislators in the UK to establish machinery for the exami­nation of monopoly situations and to decide each case on its merits. Nevertheless there is a presumption that monopoly is against the public interest.