Corporation
A corporation “is an artificial person created by law, with most of the legal rights of a real
person. These include the rights to start and operate a business, to buy or sell property, to
borrow money, to sue or be sued, and to enter into binding contracts”. Corporations make up 20 percent of all
businesses in the United States, but they account for almost 90 percent of the
revenue. Although some small businesses are incorporated, many corporations are extremely
large businesses—for example, Walmart, General Electric, Procter & Gamble, and Home Depot.
Recent data show that only about one-half of the small business owners in the United States run
incorporated businesses.
Scott Shane, author of The Illusions of Entrepreneurship, argues
that small businesses that are incorporated have a much higher rate of success than sole
proprietorships, outperforming unincorporated small businesses in terms of profitability,
employment growth, sales growth, and other measures. [12] Shane maintains that being
incorporated may not make sense for “tiny little businesses” because the small amount of risk
may not be worth the complexity. However, Deborah Sweeney, incorporation expert for Intuit,
disagrees, saying that “even the smallest eBay business has a risk of being sued” because
shipping products around the country or the world can create legal problems if a shipment is
lost. Ultimately, it is the small business being successful that may be the biggest factor for the
owner to move from a sole proprietorship to a corporation.
Corporations: A Summary of Characteristics
Liability Taxes Advantages Disadvantages
Limited; multiple taxation
Limited liability
Skilled management team
Ease of raising capital
Easy to transfer ownership by
selling stock
Perpetual life
Legal-entity status
Economies of large-scale
operations
Double taxation
Difficult and expensive to start
Individual stockholder has little control over
operations
Financial disclosure
Lack of personal interest unless managers
are also stockholders
Credit limitations
Government regulation and increased
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