$($please read passage and awnser the following multiple choice questions$)$ Corporations

There are many reasons why entrepreneurs choose corporations as a form of business ownership. A corporation $($sometimes called a C corporation$)$ is an artificial person created by law, with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts.

$$Corporate Ownership

Shares of ownership of a corporation are called stock. Stockholders are the owners of a corporation. Stock is sold to people or companies that want to invest in the company. Organizations may also issue stock to key employees as a reward or to investors in place of dividends:

A closed corporation is a corporation whose stock is owned by relatively few people and is not sold to the general public.

An open corporation $($sometimes called a public corporation$)$ is a corporation whose stock can be bought and sold by any individual.

$$Forming a Corporation

Becoming a corporation and having $$Inc$.$ behind your company name does not guarantee success. Corporations, just like sole proprietorships and partnerships, can fail. It is imperative, then, that business owners consider if a corporation is the best form of business ownership over sole proprietorships or partnerships.

$$Where to Incorporate

Business owners must choose where to incorporate. This decision is usually based on the cost of incorporating in one state rather than another and each state$$s corporate laws and tax structure. A corporation that does business in more than one state is called a domestic corporation in the state where it is incorporated and a foreign corporation in the other states in which it does business. A corporation chartered by a foreign government and conducting business in the United States is an alien corporation.

$$The Corporate Charter

Companies that choose a corporation as their form of business must submit articles of incorporation to the secretary of state or appropriate state authority. When the articles of incorporation are approved, they become a contract, or corporate charter, between the company and the state in which they are incorporated. The document usually includes the firm$$s name and address, purpose of the corporation, amount and types of stock to be issued, rights of stockholders, and more.

$$Stockholders$$ Rights

Stockholders are the owners of a corporation even though they do not manage the daily operations of the business. Corporations can issue two types of stock:

Common stock allows shareholders to vote in stockholders$$ meetings. Dividends to common stock owners are paid after creditors, bondholders, and preferred shareholders.

Preferred stock does not allow shareholders voting rights. Owners of preferred stock are paid dividends before common stock owners.

A dividend is a distribution of earnings to the stockholders of a corporation. Other stockholder rights include voting on the corporate charter, receiving information about the corporation, and attending the annual stockholders$$ meeting where they may vote on matters of corporate policy. Many shareholders vote by proxy because they are unable to attend a corporation$$s annual meeting. A proxy is a legal form listing issues to be decided at a stockholders$$ meeting and enabling stockholders to transfer their voting rights simply by signing and returning the proxy form.

$$Organizational Meeting

The last step in forming a corporation involves meeting to adopt corporate bylaws and electing the first board of directors.

$$Corporate Structure

Because most stockholders do not play a role in the daily operations of the corporation, the stockholders elect a board of directors to represent their interests. The board of directors set the mission and broad objectives for the organization. While the board of directors normally do not manage the daily activities of the corporation, they appoint corporate officers to do so$.$ Corporate officers include the chairperson of the board, president, executive vice presidents, corporate secretary$,$ treasurer, and any other top executive appointed by the board of directors.Owners of $\_\_\_\_\_\_\_$ can vote in stockholders$$ meetings.

institutional stock

limited stock

common stock

preferred stock

Assessment question

A corporation that does business in more than one state is called a$($n$)$

select answer

in the state where it is incorporated and a$($n$)$

select answer

in the other states in which it does business.

Assessment question

The $\_\_\_\_\_\_\_\_$ set the mission and broad objectives for a corporation and appoint corporate officers.

institutional investors

board of directors

stockholders

corporation owners