This week, we examine the structure of big business. The most complex is the corporation. This kind of business organization is designed to have an unlimited lifetime.
Investors in a corporation own stock. This is a share of the ownership. Investors can trade their shares or keep them as long as the company is in business. Investors may get paid dividends, a small amount of money for each share they own.
A corporation is a legal entity, a being separate from its owners. Shareholders are not responsible for the debts of the corporation. Shareholders can only lose the money they invest in stock. The corporation itself is responsible for its debts.
A board of directors controls the corporate policies. The directors appoint top company officers. The directors might or might not hold any shares in the corporation.
United States tax law recognizes two general kinds of corporations. The first is known as the C corporation. C corporations were the only kind for many years. Most pay taxes on their profits. Shareholders also pay taxes on dividends they receive. Some people call this "double taxation."
So, in nineteen-eighty-six, the government created the S corporation. An S corporation is not taxed by the federal government. It is like a partnership. It can pass its profits and losses on to its owners. But S corporations cannot have more than seventy-five shareholders. There are other restrictions as well.
The federal tax agency is the Internal Revenue Service. It says that in two-thousand, about fifty-seven percent of corporations in the United States were S corporations. Their number has grown each year since the start. Yet they control only a small part of the value of all corporations.
Not all corporations are traditional businesses that sell stock. The American Red Cross, for example, is organized as a non-profit corporation.
Corporations can be huge or not so huge. They may have a few major shareholders. Or the ownership may be spread widely among the general public. Incorporating offers a way for businesses to gain the investments they need to grow. It also offers a way for the investors to limit their responsibility.