Career Advice

Corporation

There is not a person in the world who hasn’t heard of names like Yahoo, Google, Microsoft, Burger King, e-bay, Hewlett Packard, Toyota Motors, the Coco-Cola, General Electric, and so on. All these names depict corporations.
Are you eager to know more about corporations? Let’s continue this read.

What is Corporation?

A corporation is one of the ways to organize a business formally.
A corporation is a legally separate entity with distinct owners.
It is owned by shareholders and ownership is represented by shares of stock.
At the same time it enjoys the rights and responsibilities an individual has.

Like for instance, it can enter into contracts, provide loan and borrow money, can sue or be sued, can hire employees, own assets and pay taxes as legal person.

In other words, it is like a company or acts like a single entity authorized by group of people and is recognized by law.

What are its Features?

It is owned by shareholders and shares of stocks define the ownership.
The shareholders elect a group of people to oversee the management of the corporation and they are usually termed as ‘board of directors’. These people work in the best interest of the shareholders.
Normally corporations don’t die unless it goes into bankruptcy or the shareholders decide to dissolve it.
Another important aspect is that shareholders have limited liability. It means that shareholders have limited exposure to financial risk of the company.
It pays taxes on the income generated, though part of the income is distributed as dividends to shareholders.
Corporations have the privilege of owning assets, provide load or borrow money. It can be sued or sue.

How is it Created?

A corporate gets created when a group of people pursuing a common goal, often referred to as shareholders get together. Their objective can be oriented towards profit or sometimes not!

Generally, 90% of corporations prefer giving some returns to their shareholders. The corporation treasury announces buying of shares through different modes and a person who is interested in it can buy those shares. Such a person becomes a shareholder of the company. Hence, corporations can have one or many shareholders.

Public funded corporations have thousands of shareholders. These corporations work under the jurisdiction regulations of the place or country where it is located.

What are the Types of Corporations?

C corporation:

It is a standard corporation which is taxed separately. In other words, it means that there is corporate level taxation and another at personal level. This is what they say a ‘double taxation’
Here dividends are shared with the shareholders.
The advantages of this kind of corporation are that owners receive tax-free health coverage. It means that the corporation deducts the premiums fully.

S corporation:

It is a form of corporation that meets the requirements of Internal Revenue Code (IRC).
The shareholders gets the benefit directly.
The ‘double taxation’ is avoided using the corporate structure.
Only one class of stock is held
The losses, income, deductions and credits are passed to shareholders.

Non-profit corporation:

It is a special type of corporation organized to evade certain tax by qualifying “certain” status that would benefit public or group of individuals
It aims to achieve its mission.
It is commonly used to satisfy the purpose of charity, education, religion.
The revenue received in the form of contributions, donations are retained to be spent for its future plans or for expansion.
Examples are Human Rights Campaign, United Nations Children’s Fund, Doctors without Borders, World Wildlife Fund, etc.

Limited Liability Company:

It is a corporate structure in which its members are not liable for the debts or liabilities associated that the company.
It displays a combination of characteristics pertaining to those of corporation and partnership.
It functions like corporation with regard to liability and divides profits among owners. Examples are Quora, Facebook, Google, Apple, Barclay’s Bank, etc.

What are the Advantages of Corporations?

Being independent:

It functions in such a way that it is independent of its owners and is considered as legal entity. Due to this fact, it can conduct business on its own, buy and own properties, enter into contracts, lend and borrow money, sue and be sued, and pay taxes.

Voted members:

It is managed by board of directors elected by its shareholders through voting process.
In case the board is unable to perform their functions, it does not affect the continuity. Only the functioning style changes.

Limited Liability:

In corporations, investors have limited liability meaning that they are liable for the amount they have invested.

The corporation protects the owner or shareholders. In other words, the shareholders are not held responsible for debts or liabilities associated with the business.

Thus the creditors cannot confiscate owners personal assets like cars, house, property, to pay the debts.

Easy to trade:

In public related corporation, there is no approval required to sell stocks or shares held by shareholders. It can be easily traded in the market.

Attracts investors:

It makes it easy to raise capital for expansion. Besides, even banks provide loan if the company is incorporated.

Due to stock structure, easy ownership, limited liability, it is easy to attract investments. Besides, the declaration by the board of directors earns trust and confidence of the investors and outside stakeholders.

Professional team:

The corporates have professional management team who handles day to day activities giving an advantage for the investors or owners. These team are hired by the board of directors.

Tax advantage:

Mostly corporate income is not subject to social security taxes or workers compensation taxes that gives tax advantage in the form of gains through deduction of health premium paid, and self-employment tax savings.

Be an employee:

As corporation is formed by shareholders or owners, they can be employees of the corporation itself. Hence, they can receive salary or income along with the dividends, the corporations declares.

Moreover, they get the benefit of reimbursement or tax deduction based on the expense related with the corporation.

What are the Disadvantages of Corporations?

Double taxation:

Corporations are mostly subjected to double tax. One is at the corporate level and other at the personal level who receives dividends.

Moreover, if you are employed, then you need to pay self-employment tax. The dividends paid are not deductible from taxable income.

Costs of documentation:

The cost of documenting is more expensive and consumes time when compared to other business entities.

As the corporations activities are under the radar of government, it needs to keep records of all its business dealings.

Besides, it needs to attend to documentation needed by legal law and other corporate tax details. Hence, creating corporate incurs more costs.

Management:

As shareholders, you cannot take part in the decisions of the corporation as the decision is undertaken by board of directors.

The management team has more chances of ignoring owner’s oversight if there is no one interested in company.

Examples of Some Famous Corporates:

Definition of success is not only based on wealth or contribution or how long corporate functions, but it’s a combination of all these factors. It mainly depends on its survival for long time, strong financial history, providing service to society.

Walt Disney Company:

Started by the Disney Brothers studio in 1928, it has made its name and mark in media and other market sections.

It almost became a trademark as it is known for cartoons, screen films, short shows, theme parks, retail stores, theatre, web based content and publishing.

Disney is known to publish its goals, inspiring others to conserve nature, and protect environment.

Deere and Co.:

A world leader in farm equipment manufacture, it was founded in 1837. Its foundation is built on core values of integrity, quality, innovation and commitment.

It is known to have revolutionized farming in America through the introduction of first motorized plow. It is proven to dominate the industry with its commitment to deliver new innovative products.

It spends a percentage of its sales on research and development to bring in innovative ideas.

Johnson & Johnson:

Known to provide health care products especially baby care products, it was founded in 1886. It started with first aid products and then spread its business in the field of health care through pharmaceuticals, prescription products, consumer products and medical devices.

It is known for providing reliable health care product for over a century. Its performance has been consistent and has maintained a good track record.

Amazon.com:

Being the youngest retailing company to join the elite group, it has made its way through use of worldwide web.

Merging the traditional retailing with internet, Amazon had been innovative in changing the retail business in less than 20 years of its launch in 1996. This business revolutionized traditional retail market is threatening many known retail business.

The major aspect to its success is its supply chain management that gave a competitive edge to other retailers.

J. P. Morgan & Co.

Operating since 1799, this bank transformed itself to become the largest financial institution.

This bank is built on its core principles – build client franchise, operate business with good balance sheet and have strong controls and culture, and maintain long term shareholder value.