A corporation is owned by whom

Like sole proprietorships and partnerships, corporations have both positive and negative properties. In sole proprietorships and partnerships, for instance, the individuals who own and manage a business are the same people. Corporate managers, however, don’t necessarily own stock, and shareholders don’t necessarily work for the company. This situation can be troublesome if the goals of the two groups differ significantly. Managers, for example, might be more interested in career advancement than the overall profitability of the company. Stockholders might care about profits without regard for the well-being of employees.

Key Takeaways

• A corporation (sometimes called a regular or C-corporation) is a legal entity that’s separate from the parties who own it.
• Corporations are owned by shareholders who invest money in them by buying shares of stock.
• They elect a board of directors that’s legally responsible for governing the corporation.

• A corporation has several advantages over a sole proprietorship and partnership:

  • An important advantage of incorporation is limited liability: Owners are not responsible for the obligations of the corporation and can lose no more than the amount that they have personally invested in the company.
  • Incorporation also makes it easier to access financing.
  • Because the corporation is a separate legal entity, it exists beyond the lives of its owners.
  • Corporations are generally able to attract skilled and talented employees.

• A corporation has several disadvantages over a sole proprietorship and partnership:

  • The goals of corporate managers, who don’t necessarily own stock, and shareholders, who don’t necessarily work for the company, can differ.
  • It’s costly to set up and subject to burdensome regulations and government oversight.
  • It’s subject to “double taxation.” Corporations are taxed on their earnings. When these earnings are distributed as dividends, the shareholders pay taxes on these dividends.

Exercise

(AACSB) Analysis

SolarBike Company was formed as a partnership ten years ago by three sisters-in-law: Peg McLaughlin, Terry McLaughlin, and Joanie McLaughlin. All three worked diligently to design and produce the SolarBike: an electric bicycle propelled by the sun’s rays. The good news is that the bike is a big hit with environmentalists and last year’s sales reached $2 million. The bad news is that to keep up with growing demand for the bike, the company must expand its capacity at a cost of $1 million. Even though the company is doing well, it’s unlikely that the partnership could get the needed $1 million in funds from a bank.

The company’s predicament was discussed at a recent partnership meeting. Not only were the three partners unwilling to lend the company any more money, but also they voiced concern about being held responsible for their own actions as well as for all the partners’ actions. Peg asked the group to consider incorporating and raising funds through the sale of stock. Joanie supported this idea, but Terry was against it.

The three partners hired you as a consultant to advise them on whether to remain as a partnership or to form a private corporation. In addition to your recommendation, you should discuss the advantages and disadvantages of both forms of organization and explain how they apply to SolarBike Company’s situation.

A corporation is a complex legal entity. It is fairly easy to set up but the intricacies involved in managing the business and complying with regulatory and tax rules can be daunting for a small business owner. One of the benefits of setting up a business as a corporation, however, is the ease of determining who owns and controls the corporation.

Formation

1. A corporation is formed under the laws of the state where its articles of incorporation are filed. State corporation laws determine who owns a corporation. In all states, the ownership of a corporate entity is vested in shares of stock. The number of shares a corporation initially authorizes is detailed in the articles of incorporation.

Shareholders

1. Once a corporation is formed by filing articles of incorporation, the people or entities involved who will own the company are issued shares of stock in exchange for their capital contributions, such as contributions of cash or services. The corporation is not required to issue all of the shares that were authorized in the articles of incorporation. However, the holders of shares of stock in the corporation are its owners, and their ownership percentage is determined by the percentage of shares they hold of the total number of shares that have been actually issued by the corporation, called outstanding shares.

Stock Certificates

1. Traditionally, corporations issued a tangible stock certificate for every share of stock. Stock certificates are still in use, but many small corporations do not bother to issue stock certificates to shareholders. Opting not to issue stock certificates does not change the nature of corporation ownership under the law. Corporate owners are still stockholders, and the number of shares they own should be recorded in the corporation's stock register and the company's accounting system. The same is true if an investor buys stock through an electronic broker. He may never hold a stock certificate in hand, but he still owns shares of stock in the company based on the corporation's records.

Ownership Rights

1. Shareholders are the legal owners of a corporation, but that does not give them the right to be involved in the day-to-day management of the company. Shareholders have the right to vote for members of the board of directors. The board runs the company for the benefit of shareholders. If a single shareholder owns enough shares, he can control appointments to the board or even appoint himself to the board.

Beneficial Ownership

1. Shareholders can turn over the rights to their shares to a third party without turning over title. In this instance, the third party is the registered owner of the shares, but there is a side agreement that specifies the real owner of the shares. For example, shares held in trust by a broker for the benefit of a client will show the broker as the registered owner; however, the client is the real owner.

   Who owns a corporation quizlet?

   Terms in this set (52) The owners of a corporation are called stockholders. The owners of a corporation are called stockholders or shareholders because the ownership interests are called shares of stock.

   Are corporations owned by stockholders?

   A number of characteristics distinguish a corporation from a sole proprietor or partnership. As a corporation is owned by stockholders and managed by employees, the sale of stock, death of a stockholder, or inability of an employee to function does not impact the continuous life of the corporation.

   Is a corporation owned by one person?

   A corporation makes your business a distinct entity. In other words, it separates your business assets from your personal assets. Worried because you are the only person in your company? That is just fine; one person or multiple people can own a corporation.