1. Corporations Corporation
A legal entity, created by the state, whose assets and liabilities are separate from its owners
Has many of the rights, duties and powers of a person
Can own and transfer property
Can enter into contracts
Can sue and be sued in court
Account for the majority of all U.S. sales and income
The third form of business ownership that we will discuss in this chapter is the corporation.
Formally, corporations are legal entities, created by the state in which it is formed.
A corporation differs from a sole proprietorship and partnership in that its assets and liabilities are separate from its owners.
A corporation has many of the rights, duties and powers of a person, such as the right to receive, own and transfer property.
Corporations can enter into contracts with individuals or other legal entities and they can sue and be sued in court.
Corporations account for the majority of all U.S. sales and income.
Not all corporations are large, even small businesses can incorporate.

2. Corporations Stock Dividends
Corporations are typically owned by many individuals and organizations who own shares of the business
Shares of the corporation that may be bought or sold
Can also be gifted or inherited
Stock
Profits of a corporation that are distributed in the form of cash payments to the stockholders
Dividends
Corporations are typically owned by many individuals and organizations who own shares of the business. Those shares are stock. That is why owners are often called shareholders or stockholders.
Stock may be bought or sold, given or received as a gift or even inherited.
As owners, stockholders are entitled to dividends. Dividends are profits of a corporation that are distributed in the form of cash payments to the stockholders.

3. Corporations
Incorporators create the corporation
Following state procedure of chartering the corporation
Incorporators file legal articles of incorporation with the state
State issues a legal corporate charter to the company
Owners establish bylaws and board of directors
The individuals creating the corporation are known as the incorporators.
Each state has a specific procedure called chartering the corporation for incorporating businesses.
The incorporators then file legal documents with the state containing basic information, referred to as articles of incorporation.
A corporate charter is then issued. A corporate charter is a legal document issued by the state to a company based on information the company provides in the articles of incorporation.
After securing the charter, the owners establish bylaws and elect a board of directors.

4. Types of Corporations Domestic Corporation Foreign Corporation
Alien Corporation
If conducting business in the state in which it is chartered
If conducting business outside the state in which it is chartered
If conducting business outside the nation in which it is incorporated
There are different types of corporations. First of all, If the corporation does business in the state in which it is chartered, it is known as a domestic corporation.
In other states where the corporation does business, it is known as a foreign corporation.
If a corporation does business outside the nation in which it incorporated, it is called an alien corporation.

5. Initial Public Offering (IPO)
Types of Corporations
Owned by just one or a few people who are closely involved in managing the business
None of their stock is sold to the public
Private companies are not required to disclose financial information publicly
Private Corporation
Selling a corporation’s stock on public markets for the first time
Done when a private corporation wishes to go “public” or to raise additional capital and expand
Initial Public Offering (IPO)
Not all corporations, large or small, are publicly traded, some are privately owned.
A private corporation is owned by one or a few people who are closely involved in managing the business.
This group of people, usually a family, own all the corporation’s stock and none is sold to the public. Privately owned companies are not required to disclose financial information to the public.
Private corporations who wish to expand operations and need additional capital to do this, may have to obtain financing by “going public.”
This is facilitated through what is called an initial public offering, often referred to as an IPO.
When this occurs, the private corporation is taken public; that is, it becomes a publicly traded corporation

6. Corporations
The snack and food company Mars is privately owned by the Mars family
The company became one of the world’s largest candy makers when Mars purchased chewing-gum company Wm. Wrigley Jr. Co. in 2008
The snack and food company Mars is privately owned by the Mars family.
The company became one of the world’s largest candy makers when Mars purchased chewing-gum company Wm. Wrigley Jr. Co. in 2008.

7. There are two types of public corporations
Types of Corporations
Public Corporation
A corporation whose stock anyone may buy, sell or trade
There are two types of public corporations
Quasi-Public
Owned and operated by the government
Provides a service but often operates at a loss
Non-Profit
Focuses on providing a service rather than making a profit
Not owned by the government
A public corporation is one whose stock is available to anyone who may buy, sell, or trade. A public corporation must provide financial information to the public.
There are two types of public corporation, the quasi-public corporation and the non- profit corporation.
The quasi-public corporation is owned and operated by the federal, state, or local government. Usually, the focus of this type of corporation is to provide a service to citizens, such as the U.S. Postal Service.
The final type of corporation that we consider in this chapter is the non-profit corporation. Non-profit corporations are similar to quasi-public corporations as they focus on providing services, not a profit. The difference, and it is an important one, is that non-profit corporations are not owned by the government.

8. Elements of a Corporation
Board of Directors
A group of individuals, elected by the stockholders to oversee the general operation of the corporation, who set the corporation’s long-range objectives
The board is responsible for meeting objectives on schedule
Legally liable for mismanagement or misuse
An important duty is to hire corporate officers
Inside Directors are employees of the company
Outside Directors are people unaffiliated with the company
Private and public corporations, and most non-profit corporations, have a board of directors that oversee the general operation of the corporation.
A board of directors is elected by the stockholders. They set long-range objectives and ensure that they are met on schedule. Board members are legally liable for the overall management of the firm including its mismanagement, if that occurs.
An important duty of the board is to hire corporate officers such as the president and chief executive officer (CEO), who are responsible to the directors for the management and daily operations of the firm.
Directors can be employees of the company, called inside directors, or people unaffiliated with the company, called outside directors. Inside directors are usually the officers responsible for running the company; outside directors are often top executives from other companies.

9. Elements of a Corporation
Corporations issue two types of stock
A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do
Preferred Stock
Stock whose owners have voting rights in the corporation, yet do not receive preferential treatment regarding dividends
May vote by proxy, which allows stockholders to assign their voting privilege to someone else
Have preemptive right meaning they can buy any new shares of stock the company issues
Common Stock
Corporations issue two types of stock: preferred stock and common stock. Preferred stock is a special type of stock whose owners have a claim to profits before other stockholders do, even though they do not have a say in running the company.
Common stock owners have voting rights in the corporation yet do not receive preferential treatment regarding dividends as do owners of preferred stock.
Stock owners may vote by proxy, meaning they can assign their vote to someone else. Common stockholders, in most states, have preemptive rights to purchase new shares of stock from the corporations when the firm decides to sell new shares.

10. Corporations Double taxation Expensive to form
Disclosure of information to the government and the public
Owners and managers are not always the same and can have different goals
Disadvantages
Limited liability
Ease of transfer of ownership
Perpetual life
Securing funding is easier than for other forms of business
Expansion potential
Advantages
As we have seen with sole proprietorships and partnerships, there are advantages and disadvantages associated with corporations as a form of business ownership.
Advantages of the corporate form of business include:
The owners have limited liability providing protection to shareholders in that the corporation’s assets and liabilities are separate from its owners
Ownership (stock) can be easily transferred
Corporations usually last forever, extending beyond the life of its owners
Raising money is easier than for other forms of business
Expansion into new businesses is simpler because of the ability of the company to enter into contracts
Corporations also have disadvantages:
The company is taxed on its income, and owners pay a second tax on any profits received as dividends
Forming a corporation can be expensive
Keeping trade secrets is difficult because so much information must be made available to the public and to government agencies
Most employees are not stockholders of the company for which they work. This separation of owners and employees may be problematic. Employees without an ownership stake do not always see how they fit into the corporate picture.

11. Hostile Takeovers
Hostile takeovers occur when one individual or company attempts to buy a majority share in the company for the purpose of restructuring the management team and/or the board of directors
They are different from mergers and acquisitions because there is no mutual agreement for the transfer of company ownership
Many times, companies that are vulnerable to hostile takeovers will institute a “poison pill”, which works to dilute the value of company stock making it less attractive for the individual or company to purchase a majority share of the company
The poison pill can also serve to decrease the stock value of the takeover company if they follow through with the takeover
Hostile takeovers
Hostile takeovers occur when one individual or company attempts to buy a majority share in the company for the purpose of restructuring the management team and/or the board of directors. They are different from mergers and acquisitions because there is no mutual agreement for the transfer of company ownership. Many times, companies that are vulnerable to hostile takeovers will institute a “poison pill”, which works to dilute the value of company stock making it less attractive for the individual or company to purchase a majority share of the company. The poison pill can also serve to decrease the stock value of the takeover company if they follow through with the takeover.
SOURCE: Matt Egan. “J.C. Penny Creates Poison Pill to Protect Against Hostile Takeover”. August 22, (accessed September 24, 2013).
SOURCE: Matt Egan. “J.C. Penny Creates Poison Pill to Protect Against Hostile Takeover”. August 22, (accessed September 24, 2013).

12. Other Types of Business Ownership
Joint Venture
A partnership established for a specific project or for a limited time
Control can be divided equally, or one partner may control decision making
Used for ventures that call for large investments, such as development of new products
S-Corporation
Corporation taxed as though it were a partnership with restrictions on shareholders
Eliminates double taxation and retains the limited liability benefit
Very popular with entrepreneurs, representing nearly half of all corporate filings
We have discussed the major types of business ownership but there are a few other types left to discuss.
Joint ventures, S corporations, limited liability companies, and cooperatives are forms of ownership that are not neatly categorized into the three primary forms of sole proprietorship, partnership, or corporation.
A joint venture is a partnership established for a specific project or for a limited time.
Partners in a joint venture may be individuals or organizations.
Control may be shared equally or one partner may control decision making.
This type of business ownership is popular in situations that call for large investments such as natural resource extraction or the development of new products.
S Corporations, are a form of business ownership that is taxed as though it were a partnership.
Net profits or losses pass to the owners eliminating double taxation associated with corporations.
Plus, the benefit of limited liability is retained as well. S Corporations are very popular for entrepreneurs, representing almost half of all corporate filings in the United States in a given year.

13. Other Types of Business Ownership
Limited Liability Company (LLC)
Form of ownership that provides limited liability and taxation like a partnership but places fewer restrictions on members
Considered a blend of the best characteristics of corporations, partnerships and sole proprietorships
Cooperatives or Co-ops
Organizations composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization
A limited liability company, or an LLC, is a form of business ownership that provides limited liability as in a corporation but is treated like a partnership. Lawyers, doctors, and engineers often use the LLC form of ownership. LLCs are often considered a blend of the best characteristics of corporations, partnerships and sole proprietorships.
Cooperatives or co-ops are organizations composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization.
A co-op is set up not to make money as an entity but so members can become more profitable or save money.

14. Employee-Owned Businesses
Employee owned companies have proven to be successful on many fronts whether the company is large or small
Employees who have ownership tend to have a higher sense of loyalty to the company because there is a mutual interest between the two
There are two types of employee ownership structures:
Equity benefit plan
The equity benefit plan offers the employee a stake in the company without voting rights
Employee-controlled company
The employee-controlled structure may have less equity benefits, but all are considered owners and may have varying degrees of voting rights
Control and corporate income is shared and divided up among employee owners in this context
Employee-Owned Businesses
Employee owned companies have proven to be successful on many fronts whether the company is large or small. Employees who have ownership tend to have a higher sense of loyalty to the company because there is a mutual interest between the two. There are two types of employee ownership structures: equity benefit plan and employee-controlled company. The equity benefit plan offers the employee a stake in the company without voting rights. The employee-controlled structure may have less equity benefits, but all are considered owners and may have varying degrees of voting rights. Control and corporate income is shared and divided up among employee owners in this context.
SOURCE: Corey Rosen. “Choosing the Structure for Your Employee Ownership Plan”. June 1, (accessed September 25, 2013).
SOURCE: Corey Rosen. “Choosing the Structure for Your Employee Ownership Plan”. June 1, (accessed September 25, 2013).