1. Perpetual Life

Unlike the sole proprietorship and the partnership, a corporation is a legal entity separate and distinct from its owners and managers. Therefore it may continue indefinitely if granted a perpetual charter. Many American corporations are more than 100 years old.

2. Limited Liability

Creditors normally cannot collect claims against the corporation from persons who own shares in the corporation. Of course, the corporation itself is liable without limit for its debts; all of its assets may be seized under court order to pay delinquent claims. But the individual stockholders have limited liability and can lose only the amount they have invested.

3. Transferability of Ownership Interests

A major advantage of the corporate form over the partnership form is the; ease1 of transferring ownership interests. Normally, individual owners can sell their interests: in; the corporation without disturbing the company's operations or getting the consent of other owners. The stock of most large, corporations is traded (bought and sold) on the New York Stock Exchange or the American Stock Exchange. By contacting a stockbroker, any person may buy or sell5 a- reasonable number of shares of any listed stock within minutes when the exchanges are open.

4. Ability to Attract Large Sums of. Capital

Because liability is limited to the investment, and because owners buy and sell their interests with comparative ease, many persons invest: in corporations. Thus, great sums of money are raised. Small and large investments by thousands of individuals and institutions are combined to fund the giant corporations.

5. Professional Management

With substantial capital, efficient corporations generally have greater financial strength than do other forms of business organization. This enables corporations to attract superior workers by offering big salaries and fringe benefits. Moreover, because the corporation is not automatically dissolved by the death of any owner, it usually provides better assurance of continued employment.

TYPES OF CORPORATIONS

Corporations may be classified as public or private corporations, stock or nonstock corporations, and domestic or foreign corporations. Public corporations include incorporated political units, such as towns, villages, cities, and school districts. Private corporations may be classified as profit or nonprofit corporations. Profit corporations, private corporations organized for the purpose of making money, are found in nearly every major field of economic activity,

Types of Corporations
Public	Private
Incorporated Political Units States, cities, towns, counties, townships, school districts, water districts	Domestic: incorporated in the state Foreign: incorporated in another state Alien: incorporated in another country
	For-Profit (Stock Corporations) Business	Nonprofit (Nonstock Corporations) Religious Educational Social Charitable

including transportation, manufacturing, business, technology, entertainment, financial, and service fields. These corporations are regulated by the laws of the states in which they operate. If they are engaged in interstate commerce, they are also regulated by federal regulations. Any corporation formed for business purposes is operating for a profit and has capital stock. A bank, a railroad, and a trading firm are stock corporations. Nonprofit corporations, such as the Red Cross, are formed for educational, religious, charitable, or social purposes. A nonprofit corporation in which membership is acquired by agreement, rather than by acquisition of stock, is also a nonstock corporation. Many nonprofit fraternal organizations are nonstock corporations.

Corporations may also be classified as domestic or foreign. A corporation is considered a domestic corporation in the state in which it is incorporated. In all other states in which it may operate, the corporation is considered a foreign corporation. A foreign corporation should not be confused with an alien corporation. An alien corporation is one that is incorporated in another country but is doing business in this country.

Answer the questions:

1. What are the main features of a corporation?

2. What are the benefits of corporative business?

3. What is the stock?

4. What is a private corporation?

5. What are profit-making and nonprofit corporations?

6. What is a public service corporation?

7. In your opinion, which of these corporate forms is the most effective?

TEXT 9.

FORMING A CORPORATION

Typically, a corporation is formed as a result of the efforts of one or more persons, called promoters. These individuals bring together interested persons and take the preliminary steps to form a: corporation. Regardless of the promoters' efforts, however, the resulting corporation is not liable on any contract made1 on its behalf. The promoters cannot bind an organization that is still to be created. Usually, though, once it comes into being, the corporation adopts the contracts and is bound by them.

Articles of incorporation are drafted, and when submitted to the proper state official (usually the Secretary of State) they are a plan that serves as an application for incorporation. In most states, when the articles are properly filed, the corporate existence begins. The articles are signed and submitted by one or more persons called incorporators. At least one of the incorporators must have legal capacity to enter into a binding contract. Thus, the incorporators cannot all be minors.

The articles of incorporation are a plan filed by the incorporators and they generally contain:

1. the name of the corporation;

2. the period of duration, which may be indefinite and everlasting;

3. the purpose, or purposes, for which the corporation is organized.. This may be stated broadly, for example: “any purposes legal for a corporation in this state”;

4. the number and kinds of shares of capital stock to be authorized for issuance;

5. the location of the proposed corporation's principal office and the name of its agent to whom legal notices may be given;

6. the number of directors or the names and addresses of the persons who are to serve as directors until the first annual meeting of shareholders or until their successors are elected (in some states, the incorporators serve as directors until the shareholders elect their replacements);

7. the name and address of each incorporator; and

8. any other provision consistent with the law.

In some states, the incorporators file a certificate of incorporation instead of articles of incorporation, but with the same result. Many years ago, when a corporation was created by a special act of the legislature, a charter was issued. Today the word charter refers broadly to the articles (or certificate) of incorporation taken in connection with the governing statutory law. It also may refer to the contract that exists between the state and the corporation.

Answer the questions:

1. What is necessary to form a corporation?

2. What do articles of incorporation include?

3. What is a charter?

Task 1

Tim and Eric own a small corporation called Be a Good Sport, Inc. Tim wants to keep the emphasis on court sports. Eric wants to expand by opening a subsidiary that would sell ski equipment and clothing.

Debate in the class:

• What should Tim and Eric consider when trying to make this decision?

• How can Tim and Eric resolve their differences without harming their relationship or their business?

• Would the resolution be any different if their business were a partnership?

• What would you recommend they do?

TEXT 10.

SHARES OF STOCK

Corporations issue small units of ownership known as shares of stock. A person who owns one or more shares of stock is a shareholder (also called a stockholder).

The corporation uses the money, received from the initial sale of stock to buy equipment, supplies, and inventory; to hire labor; and to pay other expenses. As goods and services are produced and sold, more income flows into the business. Often earnings are reinvested. Money is borrowed to provide for further expansion, and sometimes more shares of stock are sold.

A shareholder is issued a stock certificate, which is written evidence of ownership and rights in the business.

Stock ownership does not transfer title to specific corporate property to the holder. The corporation, as a legal person, remains the owner of all corporate property.

Stock may have a par value, which is the face value printed on the certificate. If it does not have a par value, it is no-par stock and is originally sold at a price set by the board of directors of the corporation. When either par or no-par stock changes hands in later transfers, the price may be much higher or lower. This market price will be determined by many factors, including economic conditions of tile country, the industry, and the company — especially its past profits and future prospects.

Corporations may have one or more types of stock. Those found most frequently are common stock and preferred stock. Common stock is the basic type and generally the only kind that allows its owners voting rights in corporate elections. One vote per share may be cast. Common shareholders receive all dividends (distributions of corporate profits) unless preferred stock has been issued.

Preferred stock usually lacks voting power but does have priority claim on corporate dividends. For example, by contract with the corporation, the preferred shareholder may be entitled to receive $ 7 per share each year before any distribution of profits is made to the common shareholders. If profits are high, the common shareholders may get more money than the preferred shareholders. Preferred stock may also have a priority claim on funds generated by a corporate liquidation (sale of all assets) if and when the business is terminated.

Preferred stock may be cumulative. This means that if the dividend is not paid in a given year, it remains due and payable in the future. Each year the unpaid dividends cumulate (add up) and must be paid in full before the common shareholders receive any dividends. In some cases, the preferred stock is also participating. For example, in a given year, the fully participating preferred shareholder will receive the contracted amount of dividend per share, and the common shareholder will receive an amount per share equal to that received by a preferred shareholder. Beyond that, any balance of profits distributed is divided equally or in some other specified ratio between the preferred and common shareholders. Most corporations issue little or no preferred stock.

Answer the questions:

1. What is a par value stock?

2. What is a no-par stock?

3. What are common stock and preferred stock?

4. What is a cumulative stock?

TEXT 11.

WHO ACTUALLY CONDUCTS THE BUSINESS OF THE CORPORATION?

Although a corporation is a person in the eyes of the law, it must act through human agents elected by the shareholders, appointed by the directors, or hired by the officers. No shareholder, not even one who owns most or all the stock, can act for the corporation or bind it by contract merely because of such ownership.

Shareholders indirectly control the affairs of a corporation by electing the directors. They also have the power to vote on major issues such as changing the corporate articles, merging with another company, or selling out in a firm take over. Antitrust laws do not forbid acquisitions or mergers of dissimilar companies. Large size in itself is not illegal.

The directors, elected by the shareholders, form a corporation's board of directors. The directors oversee the corporation and formulate general policies. They must not act fraudulently or illegally.

The board of directors may enter into any contract to promote the business for which the corporation was formed. While the board's powers are very broad, they may be limited by statute, by the articles of incorporation, or by its own corporate rules.

The number of directors varies among corporations. Most states allow the shareholders to determine the number. Some states require at least three. Other states require only one director, who can also be the sole officer and sole shareholder. This gives the corporation the attributes of a sole proprietorship plus the advantage of limited liability for its owner. Statutes sometimes require that directors be shareholders. A few states require that directors be adults. Some stales require that the president of the company serve as a director, while in many corporations all the directors are officers. This is called an inside board, and is not considered ideal because the directors naturally tend to approve their conduct as officers. Better results are sometimes obtained from an outside board which has no officers in its membership, and which scrutinizes corporate performance more objectively and critically. Probably the best form is a mixed board, with some officers to provide information and detailed understanding, and some outsiders “to ask the embarrassing questions.”

Answer the questions:

1. What powers do shareholders have?

2. What is an inside board?

3. What is an outside board?

4. What is a mixed board?

TEXT 12.

THE POWERS OF THE CORPORATION

In general, a corporation can be formed for any lawful purpose. The corporation is then allowed to exercise all powers that are necessary, convenient, and lawful in achieving that purpose.

Powers vary among corporations, but some are inherent in almost every corporation. These powers include: