A corporation is a business organized under the laws of a particular state. A corporation,
such as Apple, is owned by one or more persons called stockholders, whose
ownership interests are represented by shares of stock. A primary advantage of the
corporate form is the ability to raise large amounts of money (capital) by issuing
shares of stock. Unlike a sole proprietorship or a partnership, a corporation is an ‘‘artificial
person’’ and the stockholders’ legal responsibility for the debt of the business
is limited to the amount they invested in the business. In addition, shares of stock
can be easily transferred from one owner to another through capital markets without
affecting the corporation that originally issued the stock. The ability to raise capital
by selling new shares, the limited legal liability of owners, and the transferability of
the shares give the corporation an advantage over other forms of businessorganization. However, corporate shareholders generally pay more taxes than owners
of sole proprietorships or partnerships. Exhibit 1-2 illustrates the advantages and disadvantages
of each form of organization.
While the combined number of sole proprietorships and partnerships greatly
exceeds that of corporations, the majority of business in the United States is conducted
by corporations. Therefore, this book emphasizes the corporate form of organization.