Corporations are the third form of business operation. A corporation is the most public method of doing business and more governed by state and federal laws than are sole proprietorships or partnerships. More expense is involved in establishing a corporation, but it is not excessive. The corporation is given its legal life by the state, such as cities and villages are. Therefore, to the state, the corporation becomes a legal entity, separate from its owner and managers. The profits of the corporation are taxed independently of the incomes of the company’s owners. The liabilities of the corporation are also legally separate from the personal debts of its owners. A corporation can file or be the defendant in a lawsuit without affecting the personal finances of the owners.
Since the corporation is a separate entity, it has greater flexibility than noncorporate businesses. Management decisions may be easier to make if the business is not tied to the personalities of one or two owners. Some corporations are completely managed by nonowners. Therefore, the ownership of a corporation can change while the business continues without interruption.
The ownership of a corporation is obtained through the purchase of shares, each share having a particular monetary value. When major decisions must be made, requiring a vote of the owners, each shareholder is entitled to a vote proportionate to the number of shares owned. At the end of the fiscal year, the profits of the corporation are paid to the shareholders on the basis of the number of shares owned. The profits are termed dividends. If the corporation does not make a profit, no dividends are paid and the value of the stock may be reduced.
There are several types of corporations, two of which are common in the ornamental horticulture industry. A private corporation sells its stock publicly and can be owned by many people, often as an investment. A closed corporation does not sell its stock publicly. It is often owned by the members of a single family. If additional capital is needed to finance expansion of the business, either corporation may sell more stock.
Operating decisions are made by a board of directors, elected by the stockholders. Stockholders cannot obligate the company. Since most ornamental horticulture corporations are closed corporations with few stockholders, the election of directors, their titles, and the conduct of meetings are usually informal. The incentive to incorporate is usually the desire to limit the liability of the owners.