Corporate companies or corporations are large businesses owned by shareholders. What do they have in common? That would be profit-making. Popular examples include Coca-Cola, Google Inc., Microsoft Corp, and Toyota Motor Corp.
While their definitions may vary from one jurisdiction to another, it is worth mentioning that all corporations are companies but not all companies are corporations.
A company is a general term for organizations with or without legal affiliation. Corporations, on the other hand, are companies with legal recognition and permission.
In this guide, both terms will be representing only legal entities. I will also be explaining what corporate companies are, how they operate, their bright side, how to start one and the reasons for their liquidation.
What Are Corporate Companies?
A corporate company is a legal organization formed by individuals, shareholders, or stockholders for profit generation. These businesses or brands can bid for contracts, own large assets, apply for loans, and remit federal and state taxes.
The most important feature of a corporation is limited liability. It prevents owners from taking full responsibility for a company’s debt and allows them to take a fair share of the profit if their stock appreciates.
Building Blocks of Corporate Companies
A corporation is typically made up of 5 major blocks or levels. They include:
1. Owners or shareholders
This is the highest level of any corporate company. They are a group of individuals responsible for naming a board of directors before a company commences operations.
The shareholders of a corporation should only receive a vote per share and can form part of the board of directors.
2. Board of directors
The board of directors comprises individuals trained to represent shareholders. Their major duty is to make equality decisions on issues affecting the company and shareholders.
They also create policies to guide the CEO on how to improve daily operations within the organization. In other words, they serve as the middleman between shareholders and the CEO.
Unlike shareholders, limited liability does not completely absorb them from a corporation’s debt.
3. CEO and other C-level executives
A CEO (Chief Executive Officer) oversees the proper management of a corporation’s structure. They act as the face of the company in conferences and media interviews.
Unlike shareholders and boards of directors, CEOs face the public more. They also report periodically to the board of directors and get support or guidance from them.
To make the role of a CEO easier, he or she works with other C-level executives like the COO, and CFO, just to name a few. These executives head various departments and give feedback to the CEO.
4. Employees (from mid-level to entry-level)
These are the general employees of a corporation. They occupy different departments from HR to marketing. Employees can be mid-level to entry-level and their roles are almost identical every day.
They do not have a final say in a company’s decision.
What Are the Major Types of Corporations?
A single shareholder or multiple shareholders can form a corporate company if their goals align. Corporations are majorly created for profit-making. However, there are cases where that is not the case.
Such corporate bodies are known as non-profit or charitable organizations. They service social causes like education, religion, and research.
Let’s take a look at the 3 major types of corporate companies and the values that apply to them:
1. C corporation
Most corporate companies out there belong in this category. They can have as many shareholders. C corporations allow for the distribution of profits and taxes with shareholders at individual levels.
The company also pays its taxes as a business entity without involving shareholders.
2. S corporation
S Corporation is very similar to C corporation. The only difference is that it can only take up to 100 shareholders. Shareholders also take the responsibility for profits, losses, and taxes.
3. Non-profit Corporation
Non-profit organizations do not remit taxes to anyone. They monitor their revenue closely and spend only on expansion, operations, and future objectives. People who work in these organizations are mostly volunteers and may be paid way below the minimum wage.
Pros & Cons of Corporate Companies
Corporate companies have more bright sides than downsides. Let’s look at the major ones:
Corporations are completely independent of their owners because governments identify them as legal entities. This helps them to enter into binding contracts, take loans, and pay taxes.
Corporations will always continue irrespective of what happens to shareholders or the board of directors. The only instance where liquidation (dissolving a corporate company) is possible is when the company’s charter is no longer effective.
3. Easy transfer of ownership shares
Public corporations do not require paperwork or any approval for any shareholder to sell or transfer the ownership of his or her stocks to individual owners. There is also no limit to the volume of shares that can be sold.
4. Competent management
Owners or shareholders have a serious interest in the management of a company. They appoint a board of directors who hires a CEO and other C-suite executives for professional management.
5. Numerous funding sources
Getting funds is the least problem any corporation faces. This is because they can source funds from selling stocks, loans, and issuing bonds.
1. Very expensive
Creating a corporation, most times, requires more than one individual to combine forces. This is a very expensive business model, unlike sole proprietorships or partnerships.
2. Double taxation
In corporate companies, shareholders’ and companies’ earnings are usually taxed differently. In C corporations, both the owners and the company share the burden. For an S corporation, shareholders shoulder everything.
3. Recurrent documentation
Documentation is a ceaseless operation in companies. Aside from those that occur internally, corporations must prepare annual reports and tax returns for the government.
How to Create a Corporate Company
A corporation starts when an individual or group decides to fund a business to pursue a unanimous goal. These funds can be in the form of shares or stocks and should generate profit in time.
The rules applying to each corporation depend on the region. However, creating a corporate company generally requires:
- An owner is to file articles of incorporation with his or her state and issue stocks to the shareholders. Most times, the owner(s) are also shareholders.
- These shareholders should appoint a board of directors during an annual meeting. The board assigns a CEO and mini executives to oversee the management of the company and report to them periodically.
- In cases where a public corporation wants to go private, shareholders have to fully disclose their financial assets to the government. This is always a big deal to shareholders and makes the process an extremely complex one.
Dissolving a Corporate Company
A corporate company will only fail to exist when its charter changes or its objectives have been fully achieved. The process is called liquidation and must be executed by a liquidator.
All the company’s assets will be sold. The proceeds from the sale initially go to creditors if there are any debts before shareholders take what is left.
A company can also dissolve or liquidate if it goes bankrupt.
What are the three types of business?
The three types of companies in the business world include sole proprietorship, partnership, and corporation.
All types have their advantages and disadvantages.
What is the difference between corporate and limited companies?
A corporate company or corporation is a publicly-traded organization while LLC only refers to private establishments.
LLCs offer more flexibility than corporations.
Who owns a corporation?
Shareholders own a corporation.
They appoint a board of directors to oversee the performance of their investments.
In a Nutshell
Corporate companies are legal (large) businesses with the goal of income generation. While they can be very expensive to create, you would agree with me that they are one of the easiest and safest ways to run a business and make an immense profit.
I hope you found this guide helpful. Perhaps you would be more interested in being our own boss, find out if you need a degree to start any business.
Thanks for reading.