A corporation, he said, “is an arti

A corporation, he said, “is an artificial person, invisible, intangible,
and existing only in contemplation of the law.” In other words, a
corporation (sometimes referred to as a regular or C-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
●● The right to buy or sell property
●● The right to borrow money
●● The right to sue or be sued
●● The right to enter into binding contracts
Unlike a real person, however, a corporation exists only on
paper. There are approximately 6 million corporations in the United
States. They comprise about 19 percent of all businesses, but they
account for 81 percent of sales revenues (see Figures 4.1 and 4.2).
Corporate Ownership
The shares of ownership of a corporation are called stock. The
people who own a corporation’s stock—and thus own part of the
corporation—are called stockholders. Once a corporation has
been formed, it may sell its stock to individuals or other companies
that want to invest in the corporation. It also may 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 closed corporation is a corporation whose stock is owned by relatively few
people and is not sold to the general public. As an example, Mars—the company
famous for M&Ms, Snickers, Dove, Milky Way, Twix, and other chocolate candy—is
a privately held, family-owned, closed corporation. Although many people think that
a closed corporation is a small company, there are exceptions. Mars, for example, has
annual sales of more than $30 billion, employs more than 65,000 associates worldwide,
and operates in 70 different countries.6
An open corporation is one whose stock can be bought and sold by any individual.
Examples of open corporations include General Electric, Microsoft, Apple, and
Sony.
Forming a Corporation
Although you may think that incorporating a business guarantees success, it does not.
There is no special magic about placing the word Incorporated or the abbreviation Inc.
after the name of a business. Unfortunately, like sole proprietorships or partnerships,
corporations can go broke. The decision to incorporate a business therefore should be
made only after carefully considering whether the corporate form of ownership suits
your needs better than the sole proprietorship or partnership forms.
If you decide that the corporate form is the best form of organization for you, most
experts recommend that you begin the incorporation process by consulting a lawyer to
be sure that all legal requirements are met. While it may be possible to incorporate a
business without legal help, it is well to keep in mind the old saying, “A man who acts
as his own attorney has a fool for a client.” Table 4.1 lists some aspects of starting and
running a business that may require legal help.
Where to Incorporate A business is allowed to incorporate in any state that it
chooses. Most small- and medium-sized businesses are incorporated in the state where
they do the most business. The founders of larger corporations or of those that will
do business nationwide often compare the benefits that various states provide to corporations.
The decision on where to incorporate usually is based on two factors: (1)
the cost of incorporating in one state compared with the cost in another state and
115

Ten Aspects of Business That May Require Legal Help
1. C hoosing either the sole proprietorship, partnership, corporate, or some special
form of ownership
2. C onstructing a partnership agreement
3. I ncorporating a business
4. R egistering a corporation’s stock
5. O btaining a trademark, patent, or copyright
6. Filing for licenses or permits at the local, state, and federal levels
7. Purchasing an existing business or real estate
8. C reating valid contracts
9. H iring employees and independent contractors
10. E xtending credit and collecting debts
(2) the advantages and disadvantages of each state’s corporate laws and tax structure.
Some states are more hospitable than others, and some offer fewer restrictions, lower
taxes, and other benefits to attract new firms. Delaware, Nevada, and Wyoming are
often chosen by corporations that do business in more than one state because of their
corporation-friendly laws and pro-business climate.7
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.
Sears Holdings Corporation, the parent company of Sears and Kmart, is incorporated
in Delaware, where it is a domestic corporation. In the remaining 49 states, Sears
is a foreign corporation. Sears must register in all states where it does business and
also pay taxes and annual fees to each state. A corporation chartered by a foreign
government and conducting business in the United States is an alien corporation.
Volkswagen AG, Sony Corporation, and the Royal Dutch/Shell Group are examples of
alien corporations.
The Corporate Charter Once a home state has been chosen, the incorporator(s)
submits articles of incorporation to the secretary of state. When the articles of incorporation
are approved, they become a contract between a corporation and the state in
which the state recognizes the formation of the artificial person that is the corporation.
Usually, the articles of incorporation include the following information:
●● The firm’s name and address
●● The incorporators’ names and addresses
●● The purpose of the corporation
●● The maximum amount of stock and types of stock to be issued
●● The rights and privileges of stockholders
●● The length of time the corporation is to exist
To help you to decide if the corporate form of organization is the right choice, you
may want to visit the library for more information on the incorporation process. You
can also use an Internet search engine and enter the term “business incorporation” for
useful Web sites. In addition, before making a decision to organize your business as a
corporation, you may want to consider two additional areas: stockholders’ rights and
the importance of the organizational meeting.
Stockholders’ Rights There are two basic types of stock. Owners of common
stock may vote on corporate matters. Generally, an owner of common stock has one
vote for each share owned. However, any claims of common-stock owners on profits,
dividends, and assets of the corporation are paid after the claims of others. The owners
116