Joint stock companies are a form of partnership in which each member, or stockholder, is financially responsible for the acts of the company. The transfer has no effect on the continuation of the organization since both a joint stock company and a corporation act through a central management, board of directors, trustees, or governors.
Individual stockholders have no authority to act on behalf of the company or its members. A joint stock company differs from a corporation in certain respects. A corporation exists under a state charter, while a joint stock company is formed by an agreement among the members. The existence of a joint stock company is based upon the right of individuals to contract with each other and, unlike a corporation, does not require a grant of authority from the state before it can organize.
While members of a corporation are generally not held liable for debts of a corporation, the members of a joint stock company are held liable as partners. The stock in these corporations is held by only a few individuals, who are not allowed to sell it to the general public. Companies with no such restrictions on stock sales are called public corporations; stock is available for sale to the general public.
Like sole proprietorships and partnerships, corporations have both positive and negative aspects. In sole proprietorships and partnerships, for instance, the individuals who own and manage a business are the same people.
This situation can be troublesome if the goals of the two groups differ significantly. Managers, for example, are often more interested in career advancement than the overall profitability of the company.
Stockholders might care more about profits without regard for the well-being of employees. This situation is known as the agency problem , a conflict of interest inherent in a relationship in which one party is supposed to act in the best interest of the other. It is often quite difficult to prevent self-interest from entering into these situations.
Another drawback to incorporation—one that often discourages small businesses from incorporating—is the fact that corporations are more costly to set up. When these earnings are distributed as dividends, the shareholders pay taxes on these dividends.
Corporate profits are thus taxed twice—the corporation pays the taxes the first time and the shareholders pay the taxes the second time. Rates vary by province. A lower tax rate is one of the key advantages to incorporating a business. Most accountants recommend business owners incorporate if they can afford to leave money in the company longer-term with the goal of watching the value of the assets grow.
The shares of most Canadian private corporations are eligible for a lifetime capital-gains exemption. If the business were a sole proprietorship, any gain from the sale of a private corporation would be taxed. Another advantage to incorporating is the opportunity to use income splitting among family members. If one spouse makes more money, you can income-split. Over all, both spouses will be in a lower income-tax bracket.
Another advantage of incorporation, beyond taxes, is the ability to shift liability to the corporation and away from the individual. Incorporating can also add credibility; some larger companies require contractors to be incorporated before they can be hired. The disadvantages to incorporation are increased paperwork and administration. Owners also have to file two tax returns, a personal one and a more complicated one for the business.
Not only did Ben and Jerry decide to switch from a partnership to a corporation, but they also decided to sell shares of stock to the public and thus become a public corporation.
Their sale of stock to the public was a bit unusual: Ben and Jerry wanted the community to own the company, so instead of offering the stock to anyone interested in buying a share, they offered stock to residents of Vermont only. The stock was so popular that one in every hundred Vermont families bought stock in the company.
In addition to the three commonly adopted forms of business organization—sole proprietorship, partnership, and regular corporations—some business owners select other forms of organization to meet their particular needs. How would you like a legal form of organization that provides the attractive features of the three common forms of organization corporation, sole proprietorship and partnership and avoids the unattractive features of these three organization forms?
The limited liability company LLC accomplishes exactly that. In , Wyoming became the first state to allow businesses to operate as limited liability companies. Twenty years later, in , Hawaii became the last state to give its approval to the new organization form. Since then, the limited liability company has increased in popularity.
Its rapid growth was fueled in part by changes in state statutes that permit a limited liability company to have just one member. The trend to LLCs can be witnessed by reading company names on the side of trucks or on storefronts in your city. But LLCs are not limited to small businesses. In a limited liability company, owners called members rather than shareholders are not personally liable for debts of the company, and its earnings are taxed only once, at the personal level thereby eliminating double taxation.
We have touted the benefits of limited liability protection for an LLC. We now need to point out some circumstances under which an LLC member or a shareholder in a corporation might be held personally liable for the debts of his or her company.
A business owner can be held personally liable if he or she:. A cooperative also known as a co-op is a business owned and controlled by those who use its services.
Individuals and firms who belong to the cooperative join together to market products, purchase supplies, and provide services for its members. If run correctly, cooperatives increase profits for its producer-members and lower costs for its consumer-members. Cooperatives are fairly common in the agricultural community. For example, some cranberry and grapefruit member growers market their cranberry sauce, fruit juices, and dried cranberries through the Ocean Spray Cooperative.
A not-for-profit corporation sometimes called a nonprofit is an organization formed to serve some public purpose rather than for financial gain. Additionally, individuals and other organizations that contribute to the not-for-profit corporation can take a tax deduction for those contributions.
The types of groups that normally apply for nonprofit status vary widely and include churches, synagogues, mosques, and other places of worship; museums; universities; and conservation groups.
Since Statistics Canada ended its deep collection of nonprofit statistics in , the most recent data available is:. Track how quickly you can match some of the more recent, larger mergers or major corporations.
The added employees will help the company expand into new markets and battle for global talent in the competitive Internet information providers industry. When properly executed, internal growth benefits the firm. An alternative approach to growth is to merge with or acquire another company. This rationale is attractive to companies facing competitive pressures.
To grab a bigger share of the market and improve profitability, companies will want to become more cost efficient by combining with other companies. The liability of stockholders is limited to the amount each has invested in the corporation.
Personal assets of stockholders are not available to creditors or lenders seeking payment of amounts owed by the corporation. Creditors are limited to corporate assets for satisfaction of their claims. The corporation is considered a separate legal entity, conducting business in its own name. Therefore, corporations may own property, enter into binding contracts, borrow money, sue and be sued, and pay taxes. Stockholders are agents for the corporation only if they are also employees or designated as agents.
Particularly in a public company, the stock can be easily transferred in part or total at the discretion of the stockholder. The stockholder wishing to transfer sell stock does not require the approval of the other stockholders to sell the stock. Similarly, a person or an entity wishing to purchase stock in a corporation does not require the approval of the corporation or its existing stockholders before purchasing the stock.
Once a public corporation sells its initial offering of stock, it is not part of any subsequent transfers except as a record keeper of share ownership. Privately held companies may have some restrictions on the transfer of stock.
Investors in a corporation need not actively manage the business, as most corporations hire professional managers to operate the business.
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