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Chapter Five: Corporations

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Title: Chapter Five: Corporations


1
Chapter Five Corporations
2
Corporation
  • A corporation is a legal entity which has a
    separate legal personality from its members.
  • The main legal rights and obligations of the
    corporation are
  • The ability to sue and be sued
  • The ability to hold assets in its own name
  • The ability to hire agents
  • The ability to sign contracts
  • The ability to make by-laws, which govern its
    internal affairs.

3
  • Stewart Kyd, English scholar, defined a
    corporation as "a collection of many individuals
    united into one body
  • Corporation has capacity of acting, in several
    respects, as an individual.
  • Taking and granting property,
  • Contracting obligations,
  • Suing and being sued,
  • Enjoying privileges and immunities,
  • Exercising a variety of political rights,
  • This is completed according to the design of its
    institution, or the powers conferred upon it,
    either at the time of its creation, or at any
    subsequent period of its existence.

4
  • Business corporation Investors and entrepreneurs
    often form joint stock companies and then
    incorporate them to facilitate conducting
    business as this business entity now is
    prevalent, the term corporation often is used to
    specifically refer to such business corporations.
  • Municipal corporation Corporations may also be
    formed for local government political,
    religious, and charitable purposes
    (not-for-profit corporation),
  • Government-owned corporation for government
    programmes.

5
  • Modern business corporation is the dominant type
    of corporation.
  • Characteristics
  • Legal personality,
  • Transferable shares (shareholders can be changed
    without affecting its status as a legal entity),
  • Perpetual succession capacity (its possible
    continued existence despite shareholders' death
    or withdrawal),
  • Limited liability (for instance)
  • Shareholders' amnesty from criminal actions of
    the corporation.
  • Shareholders' limited responsibility for
    corporate debt.

6
Corporate Law
  • Corporate law (also corporation law or company
    law) refers to the law establishing separate
    legal entities known as the company or
    corporation and governs the most prevalent legal
    models for firms
  • In the U.K., corporate law is a subset of
    companies law
  • Corporations are distinguished from a wider
    spectrum of organisational forms, such as
    partnerships, unincorporated associations, or
    sole proprietorships

7
Companies
  • Company the word company has no strictly legal
    meaning, but is taken to mean a specific form of
    entity created under the laws of the relevant
    jurisdiction.
  • Technically, a company (in the U.S., a
    corporation) is a juristic person or legal
    entity which has a separate legal identity from
    its shareholding members, and is ordinarily
    incorporated to undertake commercial business.
  • Because of the limited liability of the members
    of the company for the company's debts the
    separate personality, it has become the most
    popular form of business in most countries in the
    world.

8
  • Companies have a number of other uses
  • Companies, being commercial entities, are often
    easier to utilise in financing arrangements than
    partnerships and individuals.
  • Companies have a flexibility which can let them
    grow
  • there is no legal reason why a company initially
    formed by a sole proprietor cannot eventually
    grow to be a publicly listed company,
  • but a partnership will generally always be
    limited as to the maximum number of partners.

9
Companies' Law
  • Companies' law is the field of law concerning
    business and other organisations, including
    corporations and other associations which usually
    carry on some form of economic or charitable
    activity.
  • The largest companies are usually publicly listed
    on stock exchanges around the world
  • Private companies choose who their shareholders
    are.
  • The most prominent kind of company, usually
    referred to as a corporation governed by
    corporate law.
  • The defining feature of the corporation is that
    shareholders own the sole rights to vote under
    the company constitution and to appoint the
    directors who control the company.

10
  • Partnerships ? Partners may limit their liability
    for company losses.
  • Even single individuals (sole traders) may
    incorporate themselves and limit their liability
    in order to carry on a business.
  • All different forms of companies depend on the
    particular law of the particular country in which
    they reside.

11
US Companies Law
  • In the United States, corporations are generally
    organised under the laws of a particular state.
  • Corporate law governs that corporation's internal
    authority (even if the corporation's operations
    take place outside of that state).
  • The corporate laws of the various states differ -
    in some cases significantly
  • corporate lawyers are often consulted in an
    effort to determine the most appropriate or
    advantageous state in which to incorporate.

12
Companies' Law Theory
  • A corporation is described a person in a
    political capacity created by the law ? to
    endure in perpetual succession.
  • Americans in the 1790s knew of a variety of
    corporations ? becoming more aware of that
    variety than we are today.
  • Some were distinguished by their interests
    promote commerce, education, and religion.
  • At least one early American legal thinker saw
    that corporations should be erected with caution,
    and inspected with care.
  • In their external actions or transactions,
    corporations enjoy the same latitude as private
    individuals ? ? many saw this as principal
    advantage in incorporation.

13
  • The power of making by-laws was tacitly annexed
    to corporations by the act of their
    establishment. While they must not contradict the
    legal system of the country.
  • Many questions are asked! One of which is the
    duties of corporations? ? The general duties of
    every corporation may be collected from the
    nature and design of its institution it should
    act agreeably to its nature, and fulfill the
    purposes for which it was formed.

14
  • If corporations, its commercial or social
    conduct, or the by-laws are to be inspected?
  • The law has provided proper persons with proper
    powers to inspect those institutions.
  • The Common Law provided for inspection by the
    court of kings bench. In 1790, at least, the
    powers of the court of king's bench were vested
    in the supreme court of Pennsylvania.
  • The dissolution of corporations? ? a corporation
    might surrender its legal existence into the
    hands of that power, from which it was received.
    ?? the dissolution of the corporation ensues its
    surrender.

15
Companies Law Study
  • Law schools offer courses covering different
    aspects of this area of law.
  • The area of study examines issues such as
  • How each major form of business entity may be
    formed, operated, and dissolved
  • The degree to which limited liability protects
    investors
  • the extent to which a business can be held liable
    for the acts of an agent of the business
  • The relative advantages and disadvantages of
    different types of business organisations,
  • The structures established by governments to
    monitor large corporations.

16
  • The theory behind business organisations is ? by
    combining certain functions within a single
    entity, a business can operate more efficiently,
    and thereby realise a greater profit.
  • Governments seek to facilitate investment in
    profitable operations by creating rules that
    protect investors in a business from being held
    personally liable for debts incurred by that
    business, either through mismanagement, or
    because of wrongful acts

17
Origins
  • Etymology the word "corporation" derives from
    the Latin Corpus (body), representing a "body of
    people" that is, a group of people authorised to
    act as an individual.
  • The word universitas also used to refer to a
    group of people but now refers specifically to a
    group of scholars (University).
  • In England the term corporation was also used for
    the local government body in charge of a borough.
    This style was replaced in most cases with the
    term council in Britain in 1973, and in the
    Republic of Ireland.
  • The sole exception is the Corporation of London
    which retains the title.

18
Pre-Modern Corporations
  • Corporations have been present in some forms as
    far back as ancient India and ancient Rome.
    Although devoid of some of the core
    characteristics by which corporations are known
    today,
  • They were enterprises with a form of shareholders
    who invested money for a specific purpose.
  • Such corporations in the Roman Empire were
    sanctioned by the state, while such corporations
    in other Empires were mostly private commercial
    entities.
  • With the collapse of the Roman Empire, the Roman
    conception of the corporation merged with other
    views. Germanic tribes maintained that a group
    entity in and of itself could have a separate
    identity from that of its members.

19
  • These influences came together in the body of
    canon law built around the conception of the
    church as corporate structure in the Middle Ages.
  • Different theories of the church as corporate
    body were favored by different individuals but
    all agreed on one key component ?? the church
    was more than just its members and could maintain
    an existence perpetually, regardless of the death
    of any individual member.
  • This, together with discussion as to the
    relationship between the head of a corporation
    (such as the Pope) and its members, contributed
    to the development of modern corporations and
    corporate theory
  • The law classifies a corporation either as a
    corporation sole (one person) or as a corporation
    aggregate (any other number).

20
Development of Modern Commercial Corporations
  • Early commercial corporations were formed by
    governments to undertake tasks ? too risky or ?
    too expensive for individuals to embark upon.
  • Many European nations chartered corporations to
    lead colonial ventures, such as the Dutch East
    India Company or the Hudson Bay Company,
  • These corporations came to play a large part in
    the history of corporate colonialism
  • In the 19th century, in the United States,
    corporate charters were closely regulated by the
    states. ?? Forming a corporation usually required
    an act of legislature.
  • Investors generally had to be given an equal say
    in corporate governance, and corporations were
    required to comply with the purposes expressed in
    their charters.

21
  • Many private firms in the 19th century avoided
    the corporate model for these reasons and some
    formed Limited Partnerships.
  • Eventually, state governments began to realise
    the greater corporate registration revenues
    available by providing more permissive corporate
    laws.
  • New Jersey was the first state to adopt an
    "enabling" corporate law, with the goal of
    attracting more business to the state. Delaware
    followed, and soon became known as the most
    corporation-friendly state in the US after New
    Jersey raised taxes on the corporations, driving
    them out.
  • New Jersey reduced these taxes after this mistake
    was realised, but by then it was too late even
    today, most major public corporations are set up
    under Delaware law.

22
  • The 20th century saw a proliferation of enabling
    law across the world, which some argue helped to
    drive economic booms in many countries before and
    after World War I
  • In the 1980s, many countries with large
    state-owned corporations moved toward
    privatisation ?? the selling of publicly owned
    services and enterprises to corporations.
  • Another major postwar shift was toward
    development of conglomerates (described as a
    large company or a multi-industry company) in
    which large corporations purchased smaller
    corporations to expand their industrial base.
  • Japanese firms developed a horizontal
    conglomeration model, the keiretsu, which was
    later duplicated in other countries as well.

23
  • While corporate efficiency and profitability
    skyrocketed ? small shareholders control was
    diminished ? and directors of corporations
    assumed greater control over business.
  • More recent corporate developments include
    downsizing, contracting-out or out-sourcing,
    off-shoring and narrowing activities to core
    business, as information technology, global trade
    regimes, and cheap fossil fuels enable
    corporations to reduce and externalise labor
    costs, transportation costs and transaction
    costs, and thereby maximise profits.

24
Legal Status
  • The existence of a corporation requires a special
    legal framework (body of law) ? grants the
    corporation legal personality (a fictional
    person, a legal person).
  • Corporate statutes give corporations the ability
    ?? to own property, sign binding contracts, pay
    taxes in a capacity that is separate from that of
    its shareholders "members".
  • The legal personality has two economic
    implications
  • First it grants creditors priority over the
    corporate assets upon liquidation.
  • Second corporate assets cannot be withdrawn by
    its shareholders, nor can the assets of the firm
    be taken by personal creditors of its
    shareholders.
  • The regulations most favorable to include

25
Limited liability
  • Unlike in a partnership or sole proprietorship,
    shareholders of a modern business corporation
    have "limited" liability for the corporation's
    debts and obligations.
  • Their potential losses cannot exceed the amount
    which they contributed to the corporation as dues
    or paid for shares.
  • Limited liability regulations allows anonymous
    trading in the shares of the corporation by
    virtue of eliminating the corporation's creditors
    in such a transaction.
  • Without limited liability, a creditor would not
    likely allow any share to be sold to a buyer of
    at least equivalent credit worthiness as the
    seller.
  • Limited liability further allows corporations to
    raise funds for enterprises by combining funds
    from the owners of stock.
  • Limited liability reduces the amount that a
    shareholder can lose in a company. This in turn
    greatly reduces the risk for potential
    shareholders.

26
Perpetual lifetime
  • The assets and structure of the corporation exist
    beyond the lifetime of any of its shareholders,
    bondholders, or employees.
  • This allows for stability and accumulation of
    capital, which thus becomes available for
    investment in ? larger size projects and over a
    longer term.
  • It is important to note that the "perpetual
    lifetime" feature is an indication of the
    unbounded potential duration of the corporation's
    existence, and its accumulation of wealth and
    thus power.
  • In theory, a corporation can have its charter
    revoked at any time, putting an end to its
    existence as a legal entity. However, in
    practice, dissolution only occurs for
    corporations that request it or fail to meet
    annual filing requirements.

27
Ownership and Control
  • Persons and other legal entities can have the
    right to vote or share in the profit of
    corporations.
  • For-profit corporations, voters hold shares of
    stock and are thus called shareholders or
    stockholders.
  • When no stockholders exist, a corporation may
    exist as a non-stock corporation, ? instead has
    members who have the right to vote on its
    operations.
  • Not-for-profit corporation is when a non-stock
    corporation is not operated for profit.
  • Corporations comprise a collective of individuals
    with a distinct legal status and with special
    privileges ?not provided to ordinary
    unincorporated businesses, to voluntary
    associations, or to groups of individuals.

28
  • There are two broad classes of corporate
    governance forms in the world.
  • In most of the world, control of the corporation
    is determined by a board of directors which is
    elected by the shareholders.
  • In some jurisdictions, such as Germany, the
    control of the corporation is divided into two
    tiers with a supervisory board which elects a
    managing board.
  • Germany is also unique in having a system known
    as co-determination in which half of the
    supervisory board consists of representatives of
    the employees.
  • The president, treasurer, and other titled
    officers are usually chosen by the board to
    manage the affairs of the corporation.

29
  • In addition, corporations can be controlled (in
    part) by creditors such as banks. In return for
    lending money to the corporation, creditors can
    demand a controlling interest similar to that of
    a member, including one or more seats on the
    board of directors.
  • In some jurisdictions, such as Germany and Japan,
    it is standard for banks to own shares in
    corporations
  • Whereas in other jurisdictions such as the US and
    the UK banks are prohibited from owning shares in
    external corporation.

30
  • Members of a corporation are said to have a
    "residual interest." Should the corporation end
    its existence, the members are the last to
    receive its assets, following creditors and
    others with interests in the corporation.
  • This can make investment in a corporation risky
    however, shareholders receive the benefit of
    limited liability, making shareholders liable for
    only the amount they contributed. This only
    applies in the case of for-profit corporations.

31
Formation
  • Historically, corporations were created by
    special charter of governments.
  • Today, corporations are usually registered with
    the state, province, or national government and
    become regulated by the laws enacted by that
    government.
  • Registration is the main prerequisite to the
    corporation's assumption of limited liability.
  • As part of this registration, it must in many
    cases be required to designate the principal
    address of the corporation ? and also be required
    to designate an agent or other legal
    representative of the corporation depending on
    the filing jurisdiction.

32
  • A corporation files articles of incorporation
    with the government, laying out
  • The general nature of the corporation,
  • The amount of stock it is authorised to issue,
  • The names and addresses of directors.
  • Once the articles are approved ?? the
    corporation's directors meet to create bylaws
    that govern the internal functions of the
    corporation ?? such as meeting procedures and
    officer positions.
  • The law of the jurisdiction in which a
    corporation operates will regulate most of its
    internal activities and finances.
  • If a corporation operates outside its state, it
    is often required to register with other
    governments as a foreign corporation, and is
    almost always subject to laws of its host state.

33
Naming
  • Corporations generally have a distinct name.
  • Historically, some corporations were named after
    their membership ? Nowadays, corporations in
    most jurisdictions have a distinct name that does
    not need to make reference to their membership.
  • In Canada (logical) many smaller corporations
    have no names at all, merely numbers based on
    their Provincial Sales Tax registration number
    (e.g., "12345678 Ontario Limited").

34
  • In most countries, corporate names include the
    term "Corporation", or an abbreviation that
    denotes the corporate status of the entity.
  • These terms vary by jurisdiction and language. In
    some jurisdictions they are mandatory, and in
    others they are not.
  • The use of a name puts all persons on
    constructive notice that they have to deal with
    an entity whose liability of its shareholders is
    limited.
  • Certain jurisdictions do not allow the use of the
    word "company" alone to denote corporate status,
    since the word "company" may refer to a
    partnership or to a sole proprietorship.

35
Unresolved Issues
  • The nature of the corporation continues to
    evolve, pushing new ideas and structures ? courts
    responding, and governments regulating in
    response to new situations.
  • A question of long standing is that of diffused
    responsibility e.g., if a corporation is found
    liable for a death, then how should the blame and
    punishment for this be allocated across the
    shareholders, directors, staff of the
    corporation, and the corporation itself?
  • The present law differs among jurisdictions.
  • Some argue that the shareholders should be
    ultimately responsible for such circumstances,
    forcing them to consider issues other than profit
    when investing,
  • but the modern corporation may have many millions
    of small shareholders who know nothing about its
    business activities.
  • This issue raises the question of the so-called
    "death penalty for corporations.

36
Types of Corporations
  • Most corporations are registered with the local
    jurisdiction as either a stock corporation or a
    non-stock corporation.
  • Stock corporations sell stock to generate
    capital. A stock corporation is generally a
    for-profit corporation.
  • Non-stock corporations do not have stockholders,
    but may have members who have voting rights in
    the corporation.
  • Some jurisdictions (Washington, D.C., for
    example) separate corporations into for-profit
    and non-profit, as opposed to dividing into stock
    and non-stock.

37
For-Profit and Non-Profit
  • In modern economic systems, conventions of
    corporate governance commonly appear in a wide
    variety of business and non-profit activities.
  • The laws governing these creatures of statute
    often differ,
  • The courts often interpret provisions of the law
    that apply to profit-making enterprises in the
    same manner (or similar manner) when applying
    principles to non-profit organisations gt as the
    underlying structures of these two types of
    entity often resemble each other.

38
Closely Held and Public
  • Publicly traded corporation where the shares of
    which are traded on a public market (e.g., the
    New York Stock Exchange or Nasdaq) ?designed
    specifically for the buying and selling of shares
    of stock of corporations by and to the general
    public.
  • Most of the largest businesses in the world are
    publicly traded corporations.
  • Closely held corporation meaning that no ready
    market exists for the trading of shares.
  • The majority of corporations are said to be
    closely held or privately held corporations
  • Many such corporations are owned and managed by a
    small group of businesspeople or companies,
    although the size of such a corporation can be as
    vast as the largest public corporations.

39
  • Advantages
  • Closely held companies can often make
    company-changing decisions much more rapidly than
    a publicly traded company.
  • Often communities benefit from a closely held
    company. A closely held company is far more
    likely to stay in a single place that has treated
    them well, even if going through hard times. ??
    The shareholders can incur some of the damage the
    company may receive from a bad year or slow
    period in the company profits.
  • Closely held companies often have a better
    relationship with workers.
  • Publicly traded companies often have more working
    capital and can delegate debt throughout all
    shareholders.

40
  • Disadvantages
  • Publicly traded companies are at the mercy of the
    market, having capital flow based not only on
    what the company is doing but the market and even
    what the competitors are doing.
  • Publicly traded companies often comes under
    extreme scrutiny if profit and growth are not
    evident to stockholders ?? thus stockholders may
    sell, further damaging the company. This is
    enough to make a small public company fail.
  • In publicly traded companies, often when a year
    has gone badly the first area to feel the effects
    are the work force (worker hours, wages or
    benefits being cut).
  • In closely held businesses the shareholders can
    incur profit damage.

41
  • The affairs of publicly traded and closely held
    corporations are similar in many respects.
  • The main difference in most countries is
  • Publicly traded corporations have the burden of
    complying with additional scrutinies laws, which
    (especially in the U.S.) may require
  • additional periodic disclosure,
  • stricter corporate governance standards,
  • additional procedural obligations in connection
    with major corporate transactions (e.g. mergers)
    or events (e.g. elections of directors).

42
Mutual Benefit Corporations
  • A mutual benefit nonprofit corporation is formed
    solely for the benefit of its members.
  • e,g., is a Golf Club. Individuals pay to join the
    club, memberships may be bought and sold, and any
    property owned by the club is distributed to its
    members if the club dissolves. The club can
    decide, in its corporate bylaws, how many members
    to have, and who can be a member.
  • While it is a nonprofit corporation, a mutual
    benefit corporation is not a charity.
  • Therefore, it cannot obtain status. If there is a
    dispute as to how a mutual benefit nonprofit
    corporation is being operated, it is up to the
    members to resolve the dispute since the
    corporation exists to solely serve the needs of
    its membership and not the general public.

43
Multinational Corporations
  • Following on the success of the corporate model
    at a national level, many corporations have
    become transnational or multinational
    corporations growing beyond national boundaries
    to attain sometimes remarkable positions of power
    and influence in the process of globalisation.
  • The typical "multinational" may fit into a web of
    overlapping shareholders and directorships, with
    multiple branches and lines in different regions,
    many such sub-groupings comprising corporations
    in their own right.
  • In the spread of corporations across multiple
    continents, the importance of corporate culture
    has grown as a unifying factor and a
    counterweight to local national sensibilities and
    cultural awareness.

44
Corporate Taxation
  • In many countries, including the US and UK,
    corporate profits are taxed at a corporate tax
    rate, and dividends (payments) paid to
    shareholders are taxed at a separate rate.
  • Such a system is sometimes referred to as "double
    taxation", because any profits distributed to
    shareholders will eventually be taxed twice.
  • One solution to this (in Australia and UK tax
    systems) is for the recipient of the dividend to
    be entitled to a tax credit which addresses the
    fact that the profits represented by the dividend
    have already been taxed.
  • The company profit being passed on is therefore
    effectively only taxed at the rate of tax paid by
    the eventual recipient of the dividend.

45
Criticisms of Corporations
  • Adam Smith criticised the idea of separation of
    ownership and management in a joint-stock company
    (corporations).
  • The directors of such companies being the
    managers rather of other peoples money than of
    their own.
  • It cannot well be expected, that they should
    watch over it with the same anxious vigilance
    with which the partners in a private co-partner
    frequently watch over their own.
  • Negligence, therefore, always prevail, more or
    less, in the management of the affairs of such a
    company.

46
  • The context for Adam Smiths term was applied to
    18th century joint-stock companies where a
    distinct entity created by the King of England as
    Royal Charter trading companies.
  • During that time, bribery and corruption were
    inherent in this type of corporate model as the
    local managers sought to avoid supervision by the
    Courts of Governors, politicians, and Prime
    Ministers.
  • In these circumstances, Smith did not consider
    joint-stock company governance to be honest.

47
  • Professor of Law at the University of British
    Columbia Joel Bakan describes the modern
    corporate entity as 'an institutional psychopath'
    and a 'psychopathic creature.'
  • Bakan claims that corporations, when considered
    as natural living persons, exhibit the features
    of antisocial personality disorder or psychopath.

48
  • Noam Chomsky, linguist, describes the corporate
    structure or an industry as being fascist.
  • It has tight control at the top and strict
    obedience has to be established at every level ?
    there's a little bargaining, the line of
    authority is straightforward.
  • I'd love to see centralised power eliminated,
    whether it's the state or the economy, and have
    it diffused and ultimately under direct control
    of the participants.
  • Chomsky has also criticised the legal decisions
    that led to the creation of the modern
    corporation
  • Corporations, which had been considered
    artificial entities with no rights, were accorded
    all the rights of persons, and far more, since
    they are "immortal persons", and "persons" of
    extraordinary wealth and power.
  • Furthermore, they were no longer bound to the
    specific purposes designated by State charter,
    but could act as they choose, with few
    constraints.

49
Other Business Entities
50
First Consumers' Cooperative
  • Consumers' cooperative is a cooperative business
    owned by its customers for their mutual benefit.
  • It is a form of free enterprise that is oriented
    toward service rather than pecuniary profit.
  • The customers (consumers) are often the
    individuals who have provided the capital
    required to launch or purchase that enterprise.
  • There are many types of consumers' cooperative ?
    health care, insurance, and housing as well as
    agricultural and utility cooperatives.

51
  • The difference between consumers' cooperatives
    and other businesses ? is the purpose of a
    consumers' cooperative is to provide quality
    goods and services at the lowest cost.
  • In practice consumers' cooperatives price goods
    and services at competitive market rates.
  • The difference is that
  • a for-profit enterprise will treat the difference
    between cost (including labor, etc.) and selling
    price as financial gain,
  • the consumer owned enterprise returns this sum to
    the consumer/owner as an over-payment.

52
  • Large consumers' cooperatives are run much like
    any other business and require workers, managers,
    clerks, products, and customers to keep the doors
    open and the business running.
  • In smaller businesses the consumers/owners are
    often workers as well.
  • Consumers' cooperatives may, in turn, form
    Cooperative Federations. These may come in the
    form of cooperative wholesale societies,
    (Consumers' Cooperatives collectively purchase
    goods at wholesale prices) and, in some cases,
    own factories.

53
Governance
  • Consumers' cooperatives utilise the cooperative
    principle of democratic member control, or one
    member/one vote.
  • Most consumers' cooperatives have a board of
    directors elected by and from the membership. The
    board is responsible for ?? hiring management and
    ensuring that the cooperative meets its goals,
    both fiscal and otherwise.
  • Most consumers' cooperatives hold regular
    membership meetings (often once a year).
  • As mutually-owned businesses, each member of a
    society has a shareholding equal to the sum they
    paid in when they joined.

54
Role of Government
  • In consumers' cooperatives, member owners provide
    all pecuniary input and recover all forms of
    return from the enterprise.
  • The transparent nature of democratic cooperation
    generates an open business environment that
    virtually eliminates any need for external
    government inspection or intervention.
  • Some claim that surplus payment returns to
    consumer/owner should be taxed the same as
    dividends paid to corporate stock holders,
  • Others argue that consumer cooperatives do not
    return a profit by traditional definition, and
    similar tax standards do not apply.

55
Problems of Consumers' Cooperatives
  • Since consumers' cooperatives are run
    democratically, they are subjected to the same
    problems typical of democratic government.
  • Difficulties can be minimised or eliminated by
    frequently providing member/owners with reliable
    educational materials regarding current business
    conditions.
  • It is worth mentioning that consumers'
    cooperative has been a focus of study in the
    field of Cooperative Economics ?? advocating such
    organisational forms, claiming a broad set of
    benefits including ?? economic democracy and
    justice, transparency, greater product purity,
    and financial benefits for consumers.

56
Second Partnership
  • A partnership is a type of business entity in
    which partners (owners) share with each other the
    profits or losses of the business undertaking in
    which all have invested.
  • Partnerships are often favored over corporations
    for taxation purposes, as the partnership
    structure does not generally incur a tax on
    profits before it is distributed to the partners.
  • However, depending on the partnership structure
    and the jurisdiction in which it operates, owners
    of a partnership may be exposed to greater
    personal liability than they would as
    shareholders of a corporation.

57
Third Limited Partnership
  • A limited partnership is similar to a general
    partnership, except that in addition to one or
    more general partners (GPs), there are one or
    more limited partners (LPs).
  • As in a general partnership The GPs have
    management control, share the right to use
    partnership property, share the profits of the
    firm in predefined proportions, and have joint
    and several liability for the debts of the
    partnership.
  • The GPs have actual authority as agents of the
    firm to bind all the other partners in contracts
    with third parties in the ordinary course of the
    partnership's business.

58
  • Like shareholders in a corporation, the LPs have
    limited liability ? they are only liable on debts
    incurred by the firm to the extent of their
    registered investment, and they have no
    management authority.
  • The GPs pay the LPs the equivalent of a dividend
    on their investment, the nature and extent of
    which is usually defined in the partnership
    agreement.
  • Limited partnerships are distinct from limited
    liability partnerships, in which all partners
    have limited liability.

59
Limited Liability
  • When the partnership is being constituted or the
    firm is changing, LPs are generally required to
    file documents with the relevant state
    registration office.
  • LPs must also explicitly disclose their LP status
    when dealing with other parties, so that such
    parties are on notice that the individual
    negotiating with them carries limited liability.
  • Documents and electronic materials issued to the
    public by the firm will carry a clear statement
    identifying the legal nature of the firm and
    listing the partners separately as general and
    limited.
  • Hence, the LPs do not have expected agency
    authority to bind the firm unless they are
    subsequently held out as agents and so create an
    agency by estoppel or acts of ratification by the
    firm create ostensible authority.

60
History
  • The earliest limited partnerships were arose in
    Rome in the third century B.C.
  • During the heyday of the Roman Empire they were
    roughly equivalent to today's major
    corporations? many had hundreds of investors.
    However, they required at least one partner with
    unlimited liability.
  • In medieval Italy, the concept was revived around
    the 10th century ? was called the commenda, a
    business organisation which was generally used
    for financing maritime trade. ?? In a commenda,
    the traveling trader of the ship had unlimited
    liability, but his investment partners on land
    were shielded.
  • Napoleonic Code of 1807 reinforced the limited
    partnership concept in European law. In the US,
    limited partnerships became widely available in
    the early 1800s. Britain enacted its first
    limited partnership statute in 1907.

61
Fourth Limited Liability Partnership
  • A limited liability partnership (LLP) has
    elements of partnerships and corporations.
  • In an LLP, all partners have a form of limited
    liability, similar to shareholders of
    corporations
  • As a result the LLP is more suited for businesses
    where all investors wish to take an active role
    in management (the partners have the right to
    manage the business directly)
  • There is considerable confusion between LLPs in
    the US and that introduced in the UK in 2001 -
    since the UK LLP is, despite the name,
    specifically legislated as a Corporate body
    rather than a Partnership.

62
Fifth Limited Liability Limited Partnership
  • The limited liability limited partnership (LLLP)
    is a relatively new modification of the limited
    partnership.
  • An LLLP is a limited partnership and as such
    consists of one or more general partners and one
    or more limited partners. The general partners
    manage the LLLP, while typically the limited
    partners only have a financial interest.
  • The difference between an LLLP and a LP is
  • In a limited partnership the general partners are
    jointly and severally liable for the debts and
    obligations limited partners are not liable for
    those debts and obligations beyond the amount of
    their respective capital contributions.

63
  • In an LLLP, by having the limited partnership
    make an election under state law, the general
    partners are afforded limited liability for the
    debts and obligations of the limited partnership
    that arise during the period that the LLLP
    election is in place.
  • Because the LLLP is so new, its use is not
    widespread.

64
Sixth Limited Liability Company
  • A limited liability company (LLC) is a legal
    form of business company offering limited
    liability to its owners.
  • It is similar to a corporation, and is often a
    more flexible form of ownership, especially
    suitable for smaller companies with a limited
    number of owners.
  • Advantages
  • No requirement of an annual general meeting for
    shareholders.
  • No loss of power to a board of directors.
  • Much less administrative paperwork and
    recordkeeping than a corporation.

65
  • An LLC can elect to be taxed as a sole
    proprietor, partnership, or corporation,
    providing much flexibility.
  • No double taxation, unless the LLC elects to be
    taxed as a corporation.
  • Profits are taxed personally at the member level,
    not at the LLC level.
  • Limited liability, meaning that the owners of the
    LLC, called "members," are protected from some
    liability for acts and debts of the LLC.
  • LLCs in some states can be set up with just one
    natural person involved.
  • LLCs in most states are treated as entities
    separate from their members, whereas in other
    jurisdictions case law has developed deciding
    LLCs are not considered to have separate
    juridical standing from their members.

66
Seventh Limited Company
  • A limited company in the UK is a corporation
    whose liability is limited by law. There are
    three main types of limited companies
  • Private company limited by shares (Ltd.)
  • Private company limited by guarantee this type
    of company does not have share capital but is
    guaranteed by its "members", who agree to pay a
    fixed amount in the event of the company's
    liquidation. Frequently charities incorporate
    using this form of limited liability.
  • Public limited company (PLC) public limited
    companies can be publicly traded on a stock
    exchange (similar to the U.S. Corporation).

67
Ninth Sole Proprietorship
  • Proprietorship, is a type of business entity
    which legally has no separate existence from its
    owner.
  • Hence, the limitations of liability do not apply
    to sole proprietors. All debts of the business
    are debts of the owner that the owner has no
    partners.
  • A sole proprietorship means a person does
    business in his or her own name and there is only
    one owner.
  • The person who organised the business pays
    personal income taxes on the profits made, making
    accounting much simpler. (No double taxation)
  • Most sole proprietors will register a trade name.
    This allows the proprietor to do business with a
    name other than his or her legal name and also
    allows the proprietor to open a business account
    with banking institutions.

68
Tenth Trust Company
  • A trust company is normally owned by one of three
    types of structures (1) an independent
    partnership, (2) a bank, or (3) a law firm, each
    of which specialises in being a trustee of
    various kinds of trusts, and managing estates.
  • The "trust" name refers to the ability of the
    institution's trust department to act as a
    trustee someone who administers financial
    assets on behalf of another.
  • A trustee will ? manage investments, keep
    records, manage assets and prepare court
    accountings, paying bills and (depending on the
    nature of the trust) medical expenses, charitable
    gifts, inheritances or other distributions of
    income.
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