Advantages of corporation

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A Corporation is a legal entity, guided consistent with the law. Inverstors purchase shares of stock and this is proof of ownership in corporation. From the moment of purchase, the shareholder becomes one of the owners of the corporation. Shareholders receive for this dividends.

There are several advantages of corporation or joint-stock company, the most important are as follows:

  • Limited responsibility (liability) for debts of the company. Only shareholders equity is at risk of bad management or unfavourable market forces. The corporate entity cover them from further liability.
  • Source of capital. Corporations can get funds by selling additional shares or issuing bonds on financial markets, thus they are able to grow much faster.
  • Perpetual life. Life of corporation is not bounded by life span of a single person (owner). Corporation ownership can go through many generations of investors.
  • Ownership transfer. Ownership transfers is faster by possibility to sell shares. Shareholder sells shares faster in a public corporation than in a private company.
  • Easy to measure goodwill. Worth of corporation is easily measured by market pricing of share value.

Usually a private business has a small group of investors. It is different in the case of public companies. If a public company registers its shares for sale in Securities and Exchange Commission they can exchange shares on the Stock Exchange and shares may be traded publicly. Relatively only few corporations are publicly-held, because the requirements of the Stock Exchange and Securities and Exchange Commission are quite rigorous (Munch S. 2012, p. 186-187).

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Author: Iwona Tuleja