Corporate Organization and Management

This section describes the incorporation, costs, and management of corporate organizations.

Incorporation
 A corporation is created by obtaining a charter from a state government. A charter application usually must be signed by the prospective stockholders called incorporators or promoters and then filed with the proper state official. When the application process is complete and fees paid, the charter is issued and the corporation is formed. Investors then purchase the corporation’s stock, meet as stockholders, and elect a board of directors. Directors oversee a corporation’s affairs.
Point: A corporation is not required to have an office in its state of incorporation.

Organization Expenses Organization expenses 
 Costs such as legal fees and promoter fees to bring an entity into existence. (also called organization costs) are the costs to organize a corporation; they include legal fees, promoters’ fees, and amounts paid to obtain a charter. The corporation records (debits) these costs to an expense account called Organization Expenses. Organization costs are expensed as incurred because it is difficult to determine the amount and timing of their future benefits.

Management of a Corporation
 The ultimate control of a corporation rests with stockholders who control a corporation by electing its board of directors, or simply, directors. Each stockholder usually has one vote for each share of stock owned. This control relation is shown in Exhibit 13.1. Directors are responsible for and have final authority for managing corporate activities. A board can act only as a collective body and usually limits its actions to setting general policy.

A corporation usually holds a stockholder meeting at least once a year to elect directors and transact business as its bylaws require. A group of stockholders owning or controlling votes of more than a 50% share of a corporation’s stock can elect the board and control the corporation. Stockholders who do not attend stockholders’ meetings must have an opportunity to delegate their voting rights to an agent by signing a proxy Legal document giving a stockholder’s agent the power to exercise the stockholder’s voting rights., a document that gives a designated agent the right to vote the stock.
Day-to-day direction of corporate business is delegated to executive officers appointed by the board. A corporation’s chief executive officer (CEO) is often its president. Several vice presidents, who report to the president, are commonly assigned specific areas of management responsibility such as finance, production, and marketing. One person often has the dual role of chairperson of the board of directors and CEO. In this case, the president is usually designated the chief operating officer (COO)

Point:Bylaws are guidelines that govern the behavior of individuals employed by and managing the corporation.

Global: Some corporate labels are:

Stockholders of Corporations
This section explains stockholder rights, stock purchases and sales, and the role of registrar and transfer agents.

Rights of Stockholders
When investors buy stock, they acquire all specific rights the corporation’s charter grants to stockholders. They also acquire general rights granted stockholders by the laws of the state in which the company is incorporated. When a corporation has only one class of stock, it is identified as common stock.

Corporation’s basic ownership share; also generically called capital stock.. State laws vary, but common stockholders usually have the general right to

1. Vote at stockholders’ meetings.
2. Sell or otherwise dispose of their stock.
3. Purchase their proportional share of any common stock later issued by the corporation. This preemptive rightStockholders’ right to maintain their proportionate interest in a corporation with any additional shares issued. protects stockholders’ proportionate interest in the corporation. For example, a stockholder who owns 25% of a corporation’s common stock has the first opportunity to buy 25% of any new common stock issued.
4. Receive the same dividend, if any, on each common share of the corporation.
5. Share in any assets remaining after creditors and preferred stockholders are paid when, and if, the corporation is liquidated. Each common share receives the same amount.

Stockholders also have the right to receive timely financial reports.

Stock Certificates and Transfer
Investors who buy a corporation’s stock, sometimes receive a stock certificate as proof of share ownership. Many corporations issue only one certificate for each block of stock purchased. A certificate can be for any number of shares. Exhibit 13.2 shows a stock certificate of the Green Bay Packers. A certificate shows the company name, stockholder name, number of shares, and other crucial information. Issuance of certificates is becoming less common. Instead, many stockholders maintain accounts with the corporation or their stockbrokers and never receive actual certificates.



 
Registrar and Transfer Agents
If a corporation’s stock is traded on a major stock exchange, the corporation must have a registrar and a transfer agent. A registrar keeps stockholder records and prepares official lists of stockholders for stockholder meetings and dividend payments. A transfer agent assists with purchases and sales of shares by receiving and issuing certificates as necessary. Registrars and transfer agents are usually large banks or trust companies with computer facilities and staff to do this work.