Corporation is a person or group of people who obtain a charter that gives them certain legal rights and privileges. A corporation can own property, conduct sales, manufacture products, provide services, and bring lawsuits as if its members were one person. Business corporations, which produce and sell goods and services, are the most common type of corporation. Other types include municipal, government-owned, quasi-public, nonprofit, and single-person corporations.
People wishing to form a corporation usually must file documents that state the purpose and makeup of the organization. In the United States, these documents are called Articles of Incorporation. After the documents are approved, a government official typically issues a certificate that permits the corporation to exist. In the United States, all companies that are incorporated under U.S. law are considered corporations. In most other countries, however, the term corporation is used only to describe large companies.
Business corporations
vary greatly in size and in the extent of their activities. They range from small companies that reach only a few consumers to complex organizations that produce most of the goods and services in a particular field. Many large corporations have branches, subsidiaries, and plants in numerous countries. Such organizations are called multinational corporations. Some large corporations control or own a number of smaller companies that operate in various unrelated markets. Such corporations are called conglomerates.
Most business corporations are public corporations, which are owned by large numbers of investors. A public corporation obtains funds by selling ownership shares, called stock. Before stock is sold, the company determines—usually with input from investment banks—the type of stock to be issued, the number of shares, and the price per share. Afterward, the stock value depends on the corporation’s financial condition, expectations of future profits, and other factors.
People who invest in a corporation generally have limited liability. If the corporation fails, they can lose no more than their investment, because the corporation’s debts are not their debts. If the corporation is profitable, investors can benefit through increases in stock value or through cash payments from the corporation. Such payments are called dividends. Stockholders may sell their stock whenever they want to, unless the corporation has specific rules to prevent such sales.
Corporations may issue different classes of stock. Common stock gives stockholders voting rights on certain company decisions. Preferred stock does not extend voting rights but gives the stockholders first claim on the company’s assets after debts are paid.
A public corporation is typically governed by a board of directors elected by stockholders. The directors establish the policies of the corporation. These policies, in turn, are carried out by officers chosen by the directors or by stockholders. Most stockholders receive one vote for each share of common stock they own. A person or group can therefore gain effective control over a corporation by acquiring enough stock.
Private corporations, unlike public corporations, have a fixed number of owners. Some private corporations are large firms. But most are small companies in which all or most stock is held by family members. In such corporations, the owners usually manage the company. There is no open market for the sale of stock of private corporations.
Mutual corporations are companies that are owned by the users of the services they provide. Examples of mutual corporations include mutual funds, credit unions, and some insurance companies.
Other corporations.
Cities and towns may form municipal corporations to operate certain government enterprises, such as sewerage and water systems. National, state or provincial, or local governments may establish government-owned corporations to provide certain functions for the benefit of the public.
Quasi-public corporations may join private and government investors in high-risk investment projects, such as the development of space satellites. In these ventures, the government usually provides funds or insures the private investor. Nonprofit corporations, such as the Red Cross, provide community services. They consist of members instead of stockholders and provide no dividends. Certain highly paid individuals, such as motion-picture stars or professional athletes, may form single-person corporations to take advantage of corporate tax benefits.
