Advantages | Disadvantages |
Combining skills and resources of two or more individuals Ease of formation Freedom from governmental regulations and restrictions Continuous life (new partners can be drawn into the business to replace those who die or retire) Profits are taxed at personal rates. | The unlimited liability of the active partners Interpersonal problems (disagreements between partners; each partner wants to be responsible for managing the business) |
Corporations
A business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock is called a corporation. Unlike sole proprietorships and partnerships, a corporation’s legal status and obligations exist independently of its owners. They are not personally liable for the debts of the corporate entity. The ease with which stockholders may transfer all or part of their shares to other investors at any time (i.e. sell their shares in the securities market) adds to the attractiveness of investing in a corporation. Because ownership can be transferred without dissolving the corporation, the corporation enjoys an unlimited life.
Corporations have most of the legal rights of a person, including the right to conduct business, to own and sell property, to borrow money and to sue or be sued.
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In a corporation, ownership and management are separate. The shareholders or owners of the company’s stock (shares in the company) elect the board of directors, who in turn elect the officers of the corporation. The corporate officers carry out the policies and decisions of the board. In practice, the real power in a corporation usually rests with its chief executive officer (CEO), who is responsible for establishing company policies and supervising the activities of the corporation.
No other form of business ownership can match the success of the corporation in bringing together money, resources, and talent, in accumulating assets, and in creating wealth. While the combined number of proprietorships and partnerships in the United States is four times the number of corporations, the revenue produced by corporations is more than two times greater. Corporations account for 70 percent of the profits earned by U.S. businesses.
A company needn’t be large to incorporate. Most corporations are relatively small. The big ones, however, are really big. The 500 largest corporations in the United States have combined sales of over $5 trillion and employ well over 10 million people.
Corporations have evolved into various types. The first distinction is whether a company is public or private. The exhibit below shows major types of corporations. The most visible corporations are the large, private ones, such as General Motors, IBM, and Coca-Cola, but other types are also common.
TYPE | DEFINITION | EXAMPLE |
Government-owned corporation | Business formed by federal or state government for a specific purpose | Local school districts; Dam systems |
Quasi-government corporation | Public utility with a monopoly on providing basic public services | Local phone service: electricity, water, natural gas |
Private corporation | Business owned by private individuals or companies | General Motors |
Not-for-profit corporation | Charitable, educational, and fraternal organizations | Harvard University |
For-profit corporation | Company in business to make a profit | IBM |
S corporation | Corporation with no more than 75 owners whose profits are taxed at personal income tax rates | Inland Asphalt |
Limited liability company (LLC) | Organizations that combine the benefits of S corporations and limited partnerships: LLC’s existence is restricted to 30 years. | Realatech |
Parent company | Company that owns most, if not all, of another company’s stock and that takes an active part in managing that other company | General Electric; 27 subsidiеries include NBC, GE Spacenet and GE Capital Services |
Holding company | Company that owns most, if not all, of another company’s stock but that does not actively participate in the management of that other company | Intermark |
Subsidiary corporation | Corporation that is entirely, or almost entirely, owned by another corporation, known as a parent company or holding company | Taco Bell, a subsidiary of PepsiCo |
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ADVANTAGES AND DISADVANTAGES OF A CORPORATION
Advantages | Disadvantages |
The power to raise large sums of capital Limited liability of owners Liquidity (investors can easily convert their stock into cash) Unlimited life span Organizational structure Professional management | Government regulations Complexity of formation (must follow procedures established by the state in which the business is incorporated) Profits are taxed at corporate rates. Shareholders pay income taxes on their share of the company’s profits received as dividends. Thus corporate profits are taxed twice. |
VOCABULARY
economic entity – экономическая единица (предприятие или фирма)
legal entity – юридическое лицо
assumption – понятие
sole proprietorship – частная собственность, частное предприятие
partnership – партнёрство, товарищество
corporation – корпорация
loss – потеря, убыток
to be liable – нести ответственность
debt – долг
volume of business – торговый оборот
to obtain a license – получить лицензию
checking account – текущий счёт (в банке)
sole proprietor – частный владелец
tax – облагать налогом, таксировать
income tax – подоходный налог
rate –ставка
privacy – секретность, сохранение в тайне
performance – деятельность, работа
loan – заем, ссуда
unlimited liability – неограниченная ответственность
personal assets – личная собственность
managerial – управленческий
transfer – передавать
heir – наследник
co-owner – совладелец
employee – служащий
management – управление, руководство
manage – управлять, возглавлять
general partnership – полное партнёрство (с неограниченной
ответственностью)
limited partnership – партнёрство с ограниченной ответственностью
contribution – вклад
master limited partnership – партнёрство с отдельной ограниченной
ответственностью каждого партнёра
partner unit – доля партнёра
stock exchange – фондовая биржа
agreement – соглашение
set forth – излагать разъяснять
skill – навык, умение
regulations – правила, предписания
restrictions – ограничения
retire – выходить в отставку, на пенсию
transferable – могущий быть переданным, переводимый
share – акция, доля
stock – акции, акционерный капитал
shares of stock – акции, доля в акционерном капитале
obligation – обязательство
securities market – рынок ценных бумаг
dissolve – распускать, ликвидировать
conduct business – вести дело
sue / be sued – выступать истцом / ответчиком
shareholder – акционер
elect – избирать
board of directors – совет директоров
officer – служащий, чиновник
chief executive officer – директор-распорядитель
supervise – контролировать, осуществлять надзор
revenue – выручка, доход
employ – нанимать, предоставлять работу
quasi-government corporation – квазиправительственная корпорация
charitable – благотворительный
fraternal – братский, связанный общностью интересов
parent company – материнская компания
holding company – холдинговая компания
subsidiary corporation – дочерняя компания
liquidity – ликвидность
life span – продолжительность жизни
procedure – процедура