1.16:
Features of a Corporation
A corporation is a legal entity distinct from its owners, offering several key features.
Let's consider Nike Inc. as an example.
One of the main features of such a corporation is limited liability. If Nike faces financial trouble, its investors only lose the money they have invested, not their personal assets like houses or savings.
This protects investors from the company's debts.
Another feature is perpetuity, which enables Nike to continue its operations indefinitely, even if its original owners or current shareholders pass away or sell their shares.
This ensures Nike can continue to grow and innovate over time in the sports and equipment industry.
Nike's ability to raise capital through stock sales enables it to finance expansions, research, and marketing without taking on expensive loans.
However, being a C corporation, Nike also faces double taxation, where its profits are taxed twice, first as corporate income and then as dividends to its shareholders.
The combined benefits of limited liability, perpetuity, and efficient capital raising help Nike remain strong and competitive in the global market.
1.16 Features of a Corporation
A notable feature of corporations is the transferability of shares, enabling shareholders to sell or transfer their ownership stakes without impacting the corporation's operations. This ease makes investment and liquidity simpler, as demonstrated by the dynamic trading of Apple Inc. shares on the stock market. Corporations benefit from centralized management, typically overseen by a board of directors and executive officers. This structure allows for specialized decision-making, enhancing the corporation's ability to respond to market conditions. For example, Microsoft Corporation's board of directors guides strategic decisions, steering the company through technological advancements and market shifts.
Additionally, corporations can enter into contracts and own property in their name. This provides operational flexibility without personal liability for shareholders. Google LLC's numerous acquisitions exemplify this capability, enabling it to enhance its technological prowess and market reach.
Corporations also enjoy the right of succession, a legal concept that allows them to continue existing despite changes in individual shareholders. This means that even if a shareholder sells their shares or passes away, the corporation can continue to operate. They have better access to credit and can issue bonds, facilitating capital raising for substantial investments.
These characteristics distinguish corporations from other business forms, and provide advantages in terms of stability, attracting investment, and facilitating growth.