A corporation is a business owned by shareholders and authorized by the state to act as a single entity. It has a board of directors elected by shareholders to oversee officers who manage daily operations. Shareholders can trade shares, vote on matters, receive dividends, and claim assets if the company dissolves. Corporations can be publicly traded or closely held. Other business structures include limited liability companies, joint ventures, nonprofits, cooperatives, and quasi-public corporations.

1. Corporate Forms of Business
Ownership

2. Corporation
• Business owned by a group of people and authorized by the state
in which it is located to act as though it were a single person,
separate from its owners
• Must obtain a charter – sometimes called a certificate of
incorporation
• Official document obtained through the state which grants power to operate
as a corporation
• Somewhat like an artificial person
• Can make contracts, borrow money, own property, and sue or be
sued in its own name
• Click here to learn more about the basics of a corporation

3. Stockholders
• Sometimes called shareholders
• Owners of a corporation
• Buy share or shares (ownership divided into equal
parts) to become a stockholder
• Thousands of people can be stockholders
• Receive a certificate from the corporation
showing how many shares are owned

4. Basic Rights of a Stockholder
1. Transfer ownership to others
2. Vote for members of the ruling body of the corporation and
other special matters considered by the stockholders
3. Receive dividends (profits that are distributed to stockholder on
a per-share basis)
• The decision to distribute dividends is made by the ruling body of the
corporation
4. Buy more shares if they are available to purchase
5. Share in the net proceeds if the business goes out of business
• This would be the cash received from selling all assets after paying all
debts

5. Board of Directors
• Sometimes called “directors” or the “board”
• Ruling body of the corporation
• Elected by the stockholders
• Develop plans and policies to guide the corporation
• Appoints officers to carry out the plans
• Usually doesn’t play an active role in the company
unless profits fall or there are other difficulties
• Large firms – 10 to 25 directors

6. Officers and Forming a Corporation
• Officers – top executives who are hired to manage the business
• Appointed by the board of directors
• Small corporations
• President, secretary, and treasurer
• Large corporations
• May have vice presidents in different areas (ex. marketing, finance, and
operations)
• Titles are often shortened
• Ex. CEO (chief executive officer) and CFO (chief financial officer)
• In order to learn about what things need to be done to form a
corporation, click here

7. Close and Open Corporations
• Close corporation
• Sometimes called a closely held corporation
• Does not offer its shares of stock for public sale
• Only a few stockholders, some may help run the business as partners
would operate a business
• Does not need financial activities disclosed to the public in most states
• Open corporation
• Sometimes called a publicly owned corporation
• Offers its shares of stock for public sale
• Prospectus – formal summary of the chief features of the business and its
stock offering; must be furnished to each prospective buyer

8. Advantages and Disadvantages of a
Corporation
• Click here to learn more about the advantages of
forming a corporation
• Click here to learn more about the disadvantages
of forming a corporation

9. Specialized Types of Organizations
• Joint venture – agreement among two or more businesses to work
together to provide a good or service
• Even a sole proprietorship and a company could agree to work together;
formation of business is not important
• Ex. Two companies building a business development; each has different
expertise
• Virtual corporation – network of companies that form alliances
among themselves as needed to take advantage of fast-changing
conditions
• More temporary than joint ventures
• Ex. One company markets the goods, another provides the materials to
make the goods, and a third manufactures the goods

10. Specialized Types of Organizations
(cont’d)
• Limited liability company – special type of corporation that is taxed
as if it were a sole proprietorship or partnership
• Referred to as a LLC, previously called a S corporation
• Provides lower taxes and limited liability
• Must meet certain eligibility rules
• 35 stockholders or less
• Business cannot own 80 percent or more of the stock of another corporation
• No more than 25 percent of the corporation’s income can come from sources
other than for the purpose(s) stated in the chart
• All stockholders must be individuals who are permanent citizens or residents
of the U.S.
• Not a fit for large corporations or multinational firms, but many partnerships
can benefit from becoming a LLC

11. Specialized Types of Organizations
(cont’d)
• Nonprofit corporation – organization that does not pay taxes and
does not exist to make a profit
• Ex. Schools, American Cancer Society
• Quasi-public corporation – business that is important, but lacks the
profit potential to attract private investors, and is often operated by
local, state, or federal government
• Ex. Fannie Mae (Federal National Mortgage Association) and Sallie Mae
(Student Loan Marketing Association) – affordable loan programs
• Cooperative – business owned and operated by its user-members
for the purpose of supplying themselves with goods and services
• Ex. Food cooperative where members can sell and buy food, goal is to
keep prices low

12. Reference
• Evarard, Kenneth E., Burrow, James L. (2001).
Business Principles and Management. Mason,
OH: South-Western.