Chapter Five: Corporations 1

Chapter Five:
Corporations
1
Corporation
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1.
2.
3.
4.
5.
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.
2
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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.
3
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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.
4
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1.
2.
3.
4.
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.
5
Corporate Law:
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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
6
Companies
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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.
7
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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.
8
Companies' Law:
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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.”
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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.
9
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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.
10
US Companies Law:
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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.
11
Companies' Law Theory:
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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.
12
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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.
13
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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 king’s 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.
14
Companies Law Study:
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
Law schools offer courses covering different
aspects of this area of law.
The area of study examines issues such as:
1. How each major form of business entity may
be formed, operated, and dissolved;
2. The degree to which limited liability protects
investors;
3. the extent to which a business can be held
liable for the acts of an agent of the business;
4. The relative advantages and disadvantages of
different types of business organisations,
5. The structures established by governments to
monitor large corporations.
15
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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
16
Origins:
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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.
17
Pre-Modern Corporations:
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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.
18
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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).
19
Development of Modern
Commercial Corporations:
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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.
20
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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.
21
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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 stateowned 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.
22
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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.
23
Legal Status:
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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:
24
Limited liability

1.
2.
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.

3.
4.
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.
25
Perpetual lifetime
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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.
26
Ownership and Control:
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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.
27
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1.
2.
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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.
28
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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.
29
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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.
30
Formation:
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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.
31
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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.
32
Naming:
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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").
33
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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.
34
Unresolved Issues:
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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,
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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.
35
Types of Corporations:
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1.
2.
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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 forprofit 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.
36
For-Profit and Non-Profit:
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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 —> as the
underlying structures of these two types of
entity often resemble each other.
37
Closely Held and Public:
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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.
38
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Advantages:

Closely held companies can often make companychanging 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.
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39
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Disadvantages:
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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.
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40
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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).
41
Mutual Benefit
Corporations:
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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.
42
Multinational Corporations:
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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.
43
Corporate Taxation:
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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.
44
Criticisms of Corporations:
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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 people’s 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.
45
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The context for Adam Smith’s 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.
46
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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.
47
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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.
48
Other Business Entities:
49
First: Consumers' Cooperative:

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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.
50
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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 overpayment.
51
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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.
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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.
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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.
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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.
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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.
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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.
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


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.
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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.
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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
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1907.
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.
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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.
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

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.
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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.
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





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.
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Seventh: Limited Company:

1.
2.
3.
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).
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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.
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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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