Page 154 - Business Principles and Management

Chapter 6 • Corporate Forms of Business Ownership

FIGURE 6-2 Business names are FIGURE 6-3 The Food Superstore, Inc.
recorded on the certificate of
incorporation.

York 2,217 shares x $100 / share = $221,700
Y, B, & C, Incorporated
Burton 2,217 shares x $100 / share = $221,700
Chan 2,217 shares x $100 / share = $221,700
York, Burton, and Chan, Inc.
Total $665,100
The Food Superstore, Inc.

Shares were valued at $100 each at the time of incorporation. There were 10,000
shares in all ($1,000,000 divided by $100 equals 10,000). York, Burton, and Chan
each agreed to purchase 2,217 shares, as shown in Figure 6-3.
The 3,349 unissued shares (the difference between the 10,000 authorized
shares and the 6,651 shares bought by the organizers) can be sold at a later date
to raise more funds to expand the business.

PAYING INCORPORATION COSTS Usually a new corporation must pay an organization
tax, based on the amount of its capital stock. In addition, a new corporation usu-
ally pays a filing fee before the state will issue a charter entitling the business
to operate as a corporation. In some states, the existence of the corporation
begins when the application or certificate of incorporation has been filed with
the Department of State.

OPERATING THE NEW CORPORATION
York, Burton, and Chan, Inc., received approval to operate as a corporation. They
turned their attention next to getting the business started.

GETTING ORGANIZED One of the first steps in getting the new corporation under way
is to prepare a balance sheet or statement of financial position. The new corpora-
tion’s balance sheet is shown in Figure 6-4.
The ownership of the corporation is in the same hands as the ownership
of the partnership was. The ownership of the corporation, however, is evi-
denced by the issued capital stock. The former partners each received a stock
certificate indicating that each owns 2,217 shares of stock with a value of
$100 a share.
The three stockholders own the business and elect themselves directors. The
new directors select officers. York is appointed president; Burton, vice president;
and Chan, secretary and treasurer. An organization chart of the new corporation
is shown in Figure 6-5.

HANDLING VOTING RIGHTS The owners agreed that each owner will have 2,217 votes
on matters arising in the meetings of the stockholders. Voting stockholders usually
have one vote for each share owned. However, if Chan, for instance, sold 1,200 of
his shares to Burton, Burton would own 3,417 shares, or more than 50 percent of
the total 6,651 shares of stock that have been issued. Then Burton could control
the corporation; that is, York and Chan would lose if Burton voted differently

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