The Corporate form of Organizations

The Corporate form of Organizations

Three forms of organizations are commonly used: Sole Proprietorship, Partnership and Corporation.

In 1918, corporation was first defined by John Marshall as "an artificial being, invisible, intangible, and existing only in contemplation of law". By this definition, we figure out that corporation creation is emerged first by law. Speaking of law, corporation represents a legal entity having an existence separate from its owners; we call them stockholders, who are not personally responsible or liable for the debts of this entity. In its legal form, the corporation is subject to the state laws; we mean here by "state" the area in which it is formed.

The corporate form of organization tends to be relevant to large companies, such as Microsoft and IBM; its size ranges from large-scale multinational firms with large numbers of employees and higher rates of profit, to Startup Corporation with small budgets.

The main difference between corporations and other legal entities, such as sole proprietorship and partnership, is that corporations are double taxation entities with a life separate from its owners.

Corporation classifications

Commonly; we can classify corporations either by purpose or by ownership.

When we classify it based on the purpose of making profit, it can be either a for-profit or a not-for-profit organization.  Examples of for-profit corporations are numerous, such as Fujitsu, PepsiCo, Google, Motorola, and Apple ...etc.

Not-for-profit corporations are established for charitable, medical or educational purposes, such as national military projects.

When we classify corporations by ownership, we can distinguish between public or private companies. A publicly held firm may have thousands of stockholders, whose stock is traded on a national security exchange, such as New York Exchange. Most of large-scale companies, IBM or General Motors for instance, are publicly held.

On the other hand; privately held companies have only few stockholders, they do not offer their stocks for public sale. Most of privately held companies are usually smaller than publicly held companies.

The Incorporation Process

It is much more complex to set up a corporation than if you are starting up a sole proprietorship or partnership. To start up a corporation, you need to go through the following steps:

1)    Select the company name (it will be your business trade name)

2)  Write the articles of incorporation, and fill them; these articles include the following items:

a.     Name of corporation

b.    Firm's goals

c.     Type of stock (common or preferred) and number of shares of each type to issue

d.    Corporation's lie

e.     Minimum investments by owners

f.       Address of the corporate headquarter

g.     Address and names of the first board of directors

3)  Pay necessary fees and taxation

4)  Hold organizational meetings

5)   Adopt bylaws

Characteristics of Corporations

As a form of organization, corporations are distinguished from other forms of organizations by the following characteristics:

(1)            Possibility to transfer ownership of shares; stockholders can sell their stocks to dispose a part or all their interest in the corporation

(2)          Separate legal entity from its owners, as it acts under its own name rather than in the name of its stockholders

(3)          Ability to obtain capital through the issuance of stocks

(4)          Limited liability of stockholders, as the corporation is a separate entity from its owners

(5)           Corporation is subject to governmental regulations (state or federal)

(6)          Additional taxation; stockholders must pay additional taxes on cash dividends