Kenneth R. Szulczyk
Corporations
Corporations start as private companies that transform into a corporation. They have an
Initial Public Offer (IPO), the day the corporation begins selling stock to the public. Usually,
the corporation’s founder holds large shares in the company’s stock and becomes a millionaire
or billionaire over night from the market value of his or her stock holdings.
A charter is a legal document from government that creates the corporation. By law, the
corporation becomes an independent legal entity with rights similar to a person. A state
government approves corporate charters in the United States. For example, several corporations
choose the State of Delaware because the state charges the lowest fees to incorporate.
A corporation has three parties: stockholders, board of directors, and executive officers.
Stockholders own the corporation, and they usually meet once a year to vote for the board of
directors, and one share equals one vote. Consequently, the majority shareholder dominates the
board of directors, and therefore, controls the corporation. Of course, a majority shareholder
could be another corporation. Next, the board of directors sets corporate policy, declares
dividends, and selects the president and executive officers. Executive officers operate the daily
business of the corporation.
We show two corporate forms in Figure 1. For both forms, the stockholders are the owners
and elect the board of directors. They differ who becomes the president of the corporation. In
the first form, the board chairman is also the chief executive officer and president of the
corporation. For the second form, the board appoints a chief operating officer to be president of
the corporation.
Figure 1. Two forms of corporate management
Corporations are large organizations that can raise a substantial amount of financial capital.
Consequently, a corporation has financial resources to enter foreign countries and dominate
international trade. Furthermore, it creates special departments that employ specialists in law,