Page 159 - Business Principles and Management

Unit 2

even have to sell their stock for less than they paid for it. If the corporation goes
out of business, stockholders may lose their entire investment.

CHECKPOINT

Explain why a corporation would want to be open instead
of close.

Advantages of Corporations

The corporation has a number of advantages as compared with the proprietor-
ship and partnership. Four such advantages are discussed below.

AVAILABLE SOURCES OF CAPITAL
The corporation can obtain money from several sources. One of those sources
is the sale of shares to stockholders. This special privilege helps to raise enough
capital to run large-scale businesses. Because corporations are regulated closely,
people usually invest more willingly than in proprietorships and partnerships.
Also, corporations usually find borrowing large sums of money less of a prob-
lem than do proprietorships or partnerships.

LIMITED LIABILITY OF STOCKHOLDERS

Except in a few situations, the owners (stockholders) are not legally liable for the
debts of the corporation beyond their investment in the shares purchased. Thus,
people—whether they have only a few dollars to invest or thousands of dollars—
can invest in a corporation without the possibility of incurring a liability beyond
their original investment.

PERMANENCY OF EXISTENCE
The corporation is a more permanent type of organization than the proprietor-
ship or the partnership. It can continue to operate indefinitely, or only as long as
the term stated in the charter. The death or withdrawal of an owner (stock-
holder) does not affect its life.

EASE IN TRANSFERRING OWNERSHIP
It is easy to transfer ownership in a corporation. A stockholder may sell stock to
another person and transfer the stock certificate, which represents ownership, to
the new owner. When shares are transferred, the transfer of ownership is indi-
cated in the records of the corporation. A new certificate is issued in the name of
the new stockholder. Millions of shares are bought and sold every day.

CHECKPOINT

List the advantages of a corporation over a proprietorship or
partnership.

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