Comprehend how a corporation is formed, who owns it, and who is responsible for its operation

Be aware of stockholders’ rights

Recognize the basic structure of a corporation

Study and Learn the Words:

English	English equivalents	Romanian	Russian
to derive from sth	to come or develop from sth
to plague	to create problems
restraint (n)		restricţie, limită	ограничение
to hinder		a împiedica	мешать, препятствовать
to despose of property		a dispune de proprietate	распоряжаться собственностью
binding (adj) on sb		care angajează din punct de vedere juridic	обязательный с юридической точки зрения
to issue stock		a emite acţiuni	выпускать акции
return (n)	income
the nation (n)	the USA
lenient (adj)		îndulgent, îngăduitor	снисходительный
headquarters (n)		sediu principal	штаб-квартира, главный офис
to entitle sb to sth	to give sb the right to do sth
common stock		acţiuni obişnuite, ordinare	простые акции
preferred stock		acţiuni privilegiate	привилегированные акции
claim on sth		pretenţie, drept	претензия, право
issue (n)	question, matter
proxy (n)		procură	доверенность
Board of directors		Consiliu de administraţie	Совет директоров
to set a goal		a stabili un scop	поставить цель
to develop a plan		a elabora un plan	разработать план
to trade		a comercializa	торговать
corporate officer	a person who is in a position of authority in a corporation	funcţionar al corporaţiei	служащий корпорации
chairman (n)		preşedinte	председатель правления
treasurer (n)	financial manager
to carry out a strategy		a realiza o strategie	реализовать стратегию
to report to sb		a fi în subordinea cuiva	подчиняться кому-л, давать отчёт
stockbroker (n)		agent de schimb (pentru acţiuni)	биржевой маклер, брокер
to raise capital	to collect money
legal person		persoană juridică	юридическое лицо
natural person		persoană fizică	физическое лицо
unless	if not
to recruit	to find new employees for a company
in effect		de fapt	в сущности, в действительности
perpetual (adj)	eternal, interminable
to take sth over	to gain control of a company by buying its shares

 

The advantages of a partnership over a sole proprietorship derive mainly from the added capital and expertise of the partners. However, some of the basic disadvantages of the sole proprietorship also plague the general partnership. Unlimited liability and restraints on capital resources and borrowing, for example, can hinder a partnership's growth. A third form of business ownership, the corporation, succeeds in overcoming some of these disadvantages.

Corporation is an artificial person created by law, with most of the legal rights of a real person. These include the right to start and operate a business, to own or dispose of property, to borrow money, to sue or be sued, and to enter into binding contracts. Unlike a real person, however, a corporation exists only on paper.

There are more than 3.2 million corporations in the United States. They comprise only about one-fifth of all businesses, but they account for more than nine-tenths of all sales revenues and more than three-quarters of all business profits.

Corporate ownership: Theshares of ownership of a corporation are called its stock. The people who own a corporation's stock—and thus own part of the corporation— are called its stockholders, or sometimes its shareholders. Oncea corpo­ration has been formed, it may sell its stock to individuals. It may also issue stock as a reward to key employees in return for certain services, or as a return to investors (in place of cash payments).

A close corporation is a corporation whose stock is owned by relatively few people and is not traded openly (that is, in stock markets). A person who wishes to sell the stock of such a corporation generally arranges to sell it privately, to another stockholder or a close acquaintance.

An open corporation is one whose stock is traded openly in stock markets and can be purchased by any individual. General Motors, the largest industrial company in the USA, is an example. Most large firms are open corporations, and their stockholders may number in the millions. For example, AT&T is owned by more than 3 million shareholders.

 

Forming a corporation

The process of forming a corporation is called incorporation. The people who actually start the corporation are its incorporators. They must make several decisions about the corporation before and during the incorpora­tion process.

Where to Incorporate A business is allowed to incorporate in any state it chooses. Most small and medium-sized businesses are incorporated in the state where they do the most business. However, the founders of larger corporations, or of those that will do business nationwide, may compare the benefits provided to corporations by various states. Some states are more hospitable than others, and some offer low taxes and other benefits to attract new firms. Delaware is acknowledged as offering the most lenient tax structure. A huge number of firms (more than 75,000) have incorporated in that state, even though their corporate headquarters may be located in another state.

An incorporated business is called a domestic corporation in the state in which it is incorporated. In all other states where it does business, it is called a foreign corporation. Scars, Roebuck, for example, is incorpo­rated in New York, where it is a domestic corporation. In the remaining forty-nine states, it is a foreign corporation. A corporation chartered by a foreign government and conducting business in the United States is an alien corporation. Volkswagen, Sony, and Toyota are examples of alien corporations.

The Corporate Charter Once a "home state" has been chosen, the incor­porators submit articles of incorporation to the secretary of state. If the articles of incorporation are approved, they become the firm's corporate charter. A corporate charter is a contract between the corporation and the state, in which the state recognizes the formation of the artificial person that is the corporation. Usually the charter (and thus the articles of incorporation) includes the following information:

- Firm's name and address

- The incorporators' names and addresses

- The purpose of the corporation

- The maximum amount of stock and the types of stock to be issued

- The rights and privileges of shareholders

- How long the corporation is to exist (usually without limit)

Each of these key details is the result of decisions that the incorporators must make as they organize the firm—before the articles of incorporation are submitted. Let us look at one area in particular: stockholders’ rights.

Stockholders' Rights There are two basic kinds of stock. Each type entitles the owner to a different set of rights and privileges. The owners of common stock may vote on corporate matters, but their claims on profit and assets are subordinate to the claims of others. Generally, an owner of common stock has one vote for each share owned. All common stock owners receive dividends but the amount of these dividends depends on the profitability of the company. The owners of preferred stock usually do not have voting rights, but their claims on profit and assets take precedence over those of common-stock owners. Preferred stock often pays a lower profit return than common stock dividends but that return is fixed and guaranteed.

Perhaps the most important right of owners of both common and preferred stock is to share in the profit earned by the corporation. Other rights include being offered additional stock in advance of a public offering (pre-emptive rights); examining corporate records; voting on the corporate charter; and attending the corporation's annual stockholders' meeting, where they may exercise their right to vote.

Because common stockholders usually live all over the nation, very few actually attend the annual meeting. Instead, they vote by proxy. A proxy is a legal form that lists issues to be decided and requests that stockholders transfer their voting rights to some other individual or individuals. The stockholder registers his or her vote and transfers his or her voting rights simply by signing and returning the form.

Organizational Meeting As the last step in forming a corporation, the original stockholders meet to elect their first board of directors. (Later, directors will be elected or re-elected at the corporation's annual meetings.) The board members are directly responsible to the stockholders for the way they operate the firm.

 

Corporate structure

Board of Directors The board of directors is the top governing body of a corporation, and, as we noted, directors are elected by the shareholders. A corporation is an artificial person. Thus it can act only through its directors, who represent the corporation’s owners. Board members can be chosen from within the corporation or from outside it.

Directors who are elected from within the corporation are usually its top managers—the president and executive vice presidents, for example. Those who are elected from outside the corporation are generally expe­rienced managers with proven leadership ability and/or specific talents that the organization seems to need. In smaller corporations, majority stockholders may also serve as board members.

The major responsibilities of the board of directors are to set company goals and develop general plans (or strategies) for meeting those goals. They are also responsible for the overall operation of the firm.

Corporate Officers A corporate officer is appointed by the board of directors. The chairman of the board, president, executive vice presidents, and corporate secretary and treasurer are all corporate officers. They help the board make plans, carry out the strategies established by the board, and manage day-to-day business activities. Periodically (usually each month), they report to the board of directors. And once each year, at an annual meeting, the directors report to the stockholders. In theory, then, the stockholders are able to control the activities of the entire corporation through its directors.

 

I. VOCABULARY PRACTICE

A) Find in the text synonyms (1-6) and antonyms (7-12) to the following:

1. restriction 7. natural

2. to possess 8. to lend

3. aim 9. from within (the company)

4. power of attorney 10. publicly

5. to achieve a goal 11. tiny (adj)

6. whole (adj) 12. to forbid

B) Choose the correct meaning of the following words:

1. to hinder means:

a) to be very common at a particular time;

b) to make it difficult for sth to happen;

c) to understand the core of the situation.

2. to sue means:

a) to bring an action against sb;

b) to bring sth into force;

c) to bring the matter forward.

3. lenient means:

a) generous and friendly;

b) using strong pressure;

c) not as strict as expected.

4. to submit means:

a) to draw up a document;

b) to present a document;

c) to sign a document.

5. to attend means:

a) to be present at an event;

b) to guess sth from an available information;

c) to send sb a message.

 

II. COMPREHESION

A) Give words to the following definitions:

1. A large business company.......................................

2. A person who owns shares of a company ……………………………..

3. The process of forming a corporation ……………………………..

4. A contract between the state and the corporation which gives to the latter the legal status ……………………………….

5. A group of people who have power to make decisions and control a corporation ………………………….

6. A legal document through which a shareholder gives the authority to some other individual to vote instead of him …………………………….

B) Answer the following questions:

1. What is the difference between a close and an open corporation?

2. Who are incorporators?

3. Why have most American companies incorporated in Delaware? What do you know about this state?

4. What is the difference between domestic, foreign and alien corporations?

5. What information does the corporate charter include?

6. What rights do stockholders have?

7. In your opinion, what type of stock – common or preferred do the stockholders prefer to buy and why?

8. What does it mean to vote by proxy?

9. Arrange the following persons according to the hierarchy of corporate structure:

a) corporate officers

b) stockholders

c) workers

d) board of directors.

To your mind, can a corporation be effectively controlled under such a system of levels?

10. What are the primary responsibilities of a corporation’s board of directors?

C) Mark the statements with TRUE or FALSE:

1. The incorporators are the primary shareholders of the corporation.

2. A corporation chartered by a foreign government in the USA is called a foreign corporation.

3. All stockholders of a corporation have the right to vote at the company’s Annual Meeting.

4. The chairman of the board is a corporate officer.

5. Most large firms in the USA are close corporations.

6. Stockholders may also serve as members of the board of directors.

7. A corporation may comprise no more than 1 million shareholders.

8. Board members are chosen only from within the corporation.

 

Advantages of Corporations

Learning objectives: