Characteristics of Corporations
Corporations represent an important type of organization. Their unique characteristics offer advantages and disadvantages. Advantages of Corporate Characteristics
Separate legal entity: A corporation conducts its affairs with the same rights, duties, and responsibilities of a person. It takes actions through its agents, who are its officers and managers.
Limited liability of stockholders: Stockholders are liable for neither corporate acts nor corporate debt.
Transferable ownership rights: The transfer of shares from one stockholder to another usually has no effect on the corporation or its operations except when this causes a change in the directors who control or manage the corporation.
Continuous life: A corporation’s life continues indefinitely because it is not tied to the physical lives of its owners. Lack of mutual agency for stockholders: A corporation acts through its agents, who are its officers and managers. Stockholders, who are not its officers and managers, do not have the power to bind the corporation to contracts — referred to as lack of mutual agency.
Ease of capital accumulation: Buying stock is attractive to investors because (1) stockholders are not liable for the corporation’s acts and debts, (2) stocks usually are transferred easily, (3) the life of the corporation is unlimited, and (4) stockholders are not corporate agents. These advantages enable corporations to accumulate large amounts of capital from the combined investments of many stockholders.
Disadvantages of Corporate Characteristics
Government regulation: A corporation must meet requirements of a state’s incorporation laws, which subject the corporation to state regulation and control. Proprietorships and partnerships avoid many of these regulations and governmental reports.
Corporate taxation: Corporations are subject to the same property and payroll taxes as proprietorships and partnerships plus additional taxes. The most...
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