Agriculture Reference
In-Depth Information
cases are not responsible for the liability that occurs through the corporation's business
activities. The assets of the corporation are all that are at risk in settling most claims. The
stockholders can, therefore, only lose the amount they have invested in the fi rm. With the
corporate structure it is possible to delegate authority, responsibility, and accountability, and
to secure outstanding, highly motivated personnel. Corporations can offer their personnel
such benefi ts as profi t sharing and stock-purchase plans, which encourage a high degree of
dedication and loyalty to the corporation.
Transfer of ownership is also easier in a corporation than in other business forms. Usually,
a stockholder can sell shares of stock to anyone for any price that the buyer is willing to pay.
An owner can also transfer individual equity to heirs or to others much more easily than in
the proprietorship or partnership. However, sale of stock in a small, unknown corporation
may not be easy. Finding someone who is willing to risk investment becomes much easier
once a stock is traded. As a corporation becomes larger and begins to develop a ready market
for its stock, brokerage houses that specialize in the sale of stock and who are in constant
touch with potential investors, may trade the stock. New issues of stock may be purchased
by a group of brokerage houses, who, in turn, sell the stock to the general public. Many
companies have their stock traded in secondary markets that list daily price movements and
facilitate the buying and selling of these stocks. Examples of these markets include the New
York Stock Exchange and NASDAQ (originally standing for National Association of
Securities Dealers Automated Quotations); NASDAQ merged with the American Stock
Exchange in 1988, and bought the Philadelphia Stock Exchange (the oldest stock exchange
in America, having been in operation since 1790) in 2007.
Because corporations' ownership rights are traded freely, it is relatively easy for them
to raise large amounts of equity capital. The combined investments of hundreds and even
thousands of investors have made the huge corporate giants of American business possible.
However, these investment funds are not automatic just because the corporation has
decided to sell stock. Buyers invest because of the proven performance or anticipated future
performance of the fi rm.
Finally, the corporation is perpetual in nature. Death, withdrawal, or retirement of its
shareholders has little effect on the life of the corporation. This is another advantage that
makes investment in a corporation more attractive to those with funds to risk.
Disadvantages of corporations
The greatest disadvantages of the corporate form of organization are taxation and regulation.
The corporation is taxed on funds it earns as profi t; then, after it has paid dividends to its
stockholders, the stockholders must again pay income tax on the amount that is received as
dividends—in effect a “double taxation” on these profi ts. (This may not always be a disad-
vantage, as will be discussed later in this chapter.) In addition, there are many states that
impose special levies and taxes on corporations, and there are many more laws and regula-
tions controlling the activities of corporations than there are for other organizational forms.
The corporation must accept a lack of privacy because reports must be made to stock-
holders and states and because the federal government may require disclosure whenever a
stock offering is made to prospective purchasers. A corporation that is chartered to do busi-
ness in one state may not do business in another state unless it complies with the second
state's laws of registration, taxation, and so forth. Finally, individual owners (stockholders)
of larger corporations have little, if any, control over management and policies of the corpo-
ration. Often their only recourse in the event of dissatisfaction is to sell their stock.
