Corporations

A corporation is legally chartered enterprise with most legal rights of a person, including the right to conduct business, to own and sell property, to borrow money, and to sue or be sued. A corporation have five important characteristics:

1. It is an artificial person with specific legal standing.

2. It has an unlimited life span.

3. It is empowered by the state to carry on a specific line of business.

4. It is owned by shareholders (stockholders).

5. Its shareholders are usually liable for damages only to the extent of their holdings.

The relationship between the company and its shareholders, or owners, is central to the enormous strength of the modern corporation. Since ownership and management are separate, the owners may get rid of the managers (in theory, at least), if the owners vote to do so. Conversely, because shares of the company (known as stock) may be bequeathed or sold to someone else, the company’s ownership may change drastically over time while the company and its management remain intact. This unlimited life span gives a corporation unlimited potential for growth.

Types of corporations. The giant organizations are almost all public corporations - that is, companies owned by large numbers of public investors. These investors buy stock on the open market, thereby providing public corporations with large amounts of permanent capital. In return, the shareholders receive the chance to share in the profits if the corporation succeeds.

But not all corporations sell shares on the open market. Private corporations (also known as closely held corporations) withhold their stock from public sale, preferring to finance any expansion out of their own earnings or to borrow from some other source. Thus, a private corporation’s executives who control the majority of the stock are assured of complete control over their operations and are protected from being bought out by people who might dismantle the company.

Some small corporations, known as S corporations (or subchapter S corporations), are even more closely held. These corporations have no more than 35 shareholders. They have one chief advantage: they may be taxed like partnerships, at rates lower than other corporations.

Not all corporations are profit-making institutions. There are many non-profit corporations as well, some owned by the government and others formed to pursue noneconomic goals in such areas as social service and the arts.

Finally, not all corporations are independent entities. Subsidiary corporations are partially or wholly owned by another corporation known as a parent company, which supervises the operations of the subsidiary. A holding company is a special type of parent company that exercises little operating control over the subsidiary, merely “holding” its stock as an investment.

Advantages of corporations. No other form of business ownership can match the success of the corporation in bringing together money, resources, and talent; in accumulating assets; and in creating wealth. The corporation has certain significant advantages that make it the best vehicle for accomplishing these tasks, a main one being its limited liability. Although a corporate entity can assume tremendous liabilities, it is the corporation that is liable rather than any of the private shareholders. Another important advantage is liquidity, meaning that an investment in a publicly held corporation can easily be converted into cash through trade on the open market. A corporation’s unlimited life span is another important advantage. It allows a firm to make long-range plans and to recruit, train, and motivate the best employees.

Disadvantages of corporations. Corporations are not without some disadvantages. One is their public disclosure requirements. Publicly owned companies are required by the government to follow certain rules and to publish information about their finances and operations. These reporting requirements put corporate managers under pressure to achieve short-term growth and earnings targets in order to satisfy shareholders and attract potential investors. The cost of incorporation are burdensome also. In addition to charter fees and lawyers’ fees, the cost of making a public stock offering may be very high. Although the tax rates for small corporations have declined in recent years, incorporated businesses still suffer from relatively high taxes when compared with unincorporated businesses. Some large corporations claim that they are taxed too heavily and that society would benefit if companies could retain more of their earnings for reinvestment. Many critics of business counter that corporations have evaded their social responsibility by employing various tax-minimization techniques, such as doing business in Panama, the Bahamas, and Bermuda, which impose no income taxes.

1. Who owns a company?

2. What characteristics has a corporation? Speak on each.

3. What are the main types of corporations?

4. Explain the difference between an open and a closed corporation.

5. Describe some of the advantages and disadvantages of a corporation.

Text 5

Read the following text, make a plan and use it while speaking on multinationals.