18. Advantages and disadvantages of corporations.

The majority of businesses are limited companies (US - corporations), in which investors are only liable for the amount of capital thay have invested. If a limited company goes bankrupt, its; assets do not cover the debts, they remain unpaid.

Often one person does not have enough money to start a business. Combining the resources of a number of people and forming a corporation is a way to raise the large amount of money needed. A corporation is a business, that although owned by one or more investors, legally has the rights and duties of an individual. Corporations have the right to buy, sell, and own property. Corporations may make legal contracts, hire and fire workers, set prices, and be sued, fined and taxed. A business must obtain a charter of incorporation from the state legilature to be lagally recognized as a corporation.

Corporations have some advantages over sole proprietorships and partnerships. First, a corporation has limited liability. Thus if the corporation goes bankrupt or is sued, the stockholders lose only the value of their stock. The stockholders, who are the corporations owners, cannot be held personally responsible for any money the corporation owes. Second, corporations have the ability to raise very large amounts of money. They use this money to change models, replace obsolete equipment, and build new factories. Corporations can raise money by selling bonds, as well as stocks. Third, a corporation has an unlimited life. That is the corporation continues to function despite death, transfer, or changes in ownership, managment, or labour. Thw work of sole proprietor or partners can end abruptly in such circumstances. This stability attracts small investors. The fourth advantage of corporation is the ease of ownership transfer. Selling a small business may be difficult; selling shares of stock is relatively easy. The investor also has an advantage. The ability to get out of one business, by selling stock, and into another quickly, by buying stock, is quite useful to smal investors.

Corporations have disadvantages as weel as advantages. First, complex forms must be filed with the state or federal governmnet. A charter must then be issued, investors found, shrea sold, and manufacturing or sales begun. The procedure for setting uo a corporation is more difficult than that for setting up a sole proprietorship or a partnership. Also, to succeed a corporation must pay stockholders regular dividends and msut keep detailed records to satisfy appropriate govenment agencies.

Second, a corporation's profits are subject to double taxation. A corporation must pay taxes on its profits before the profits are istributed to stockholders as dividends. The stockholders include this dividend money as personal income on their income tax forms. Stockholders pay taxes on this income. The government, then, has taxed the corporation's profits twice.

Third in corporations with many owners or stockholders the individual share of profits in the form of dividends is comparatively small. In a single proprietorship or partnership, profits are divided among fewer individual. Therefore, individual incomes are often greater.

Fourth, a corporation's owners do not directly control the business. Most individual stockholders take little interest in managment decisions. In contrast, sole proprietors or partners manage their own business. The main concern og the owner-managers is the success of the business. Managers of large corporations, though, may not have invested their own money in the business. Career decisions may be different from, and more important than, decisions to improve the business. For this reason many corporations arrange for managment to own shares of stock.