As previously stated, ownership in a corporation company differs greatly from ownership in a sole proprietorship or partnership. Shareholders own a portion of the corporation based on the number of shares they own. The percentage of shares held by each shareholder represents ownership in a corporation. A shareholder who owns 100 shares of a company with 1,000 issued shares, for example, has a ten percent ownership stake in the company.
A share of stock comes with both rights and responsibilities. A shareholder may be granted the right to vote on major decisions or the authority to deviate from this rule. When the board declares payment, the shareholder may also receive dividends. If the corporation declares bankruptcy, preferred stockholders are entitled to the remaining assets after other equity holders have satisfied their claims. A shareholder may also have the right to purchase new shares, but this usually requires that the stockholder waive his or her right to do so.
The shareholders of a corporation elect the directors, who are responsible for the company's policies and actions. The board of directors is elected by shareholders and meets once a year. The board of directors oversees all corporate decisions and establishes policy. The corporation's officers are in charge of day-to-day operations. They are accountable to the board of directors. A shareholder can own as much as three percent of the company. A single share's owner can be the company's president, secretary, or controller.
The articles of incorporation of a corporation state the general nature of the corporation, the number of authorized shares, and the names and addresses of the directors. The corporate bylaws govern how the corporation functions and how its assets are managed. While a corporation's stockholders cannot own its own stock, they can own treasury stock. Treasury stock is the equivalent of unissued capital and serves to reduce the number of outstanding shares. Unissued stock, unlike shareholders' shares in a corporation, does not appear on a balance sheet.
Another type of ownership is a partnership. A partnership has two or more owners, whereas a sole proprietorship only has one. It is also an excellent choice for avoiding double taxation. As a sole proprietor, you are in charge of all day-to-day operations as well as the revenue generated by the business. You must also pay taxes on profits and dividends, whereas the corporation distributes profits to its shareholders.
The amount invested in a corporation by shareholders is referred to as share capital. This is typically comprised of the corporation's shares as well as additional paid-in capital. Donated capital is sometimes included. Because corporations have limited liability, they are easier to fund than sole proprietorships. Because the number of authorized shares is typically greater than the number of issued shares, this form of ownership is frequently more advantageous for corporations, allowing them to raise the necessary funds to expand their businesses or even save themselves from bankruptcy.
The need to raise $2 million for a manufacturing facility was a primary motivator for forming a company. Instead of selling stock to the general public, Ben and Jerry decided to sell shares to Vermont residents in order to fund the project. In addition to the requirement for community funding, they desired to foster community ownership. As a result, they only offered stock to Vermont residents. Finally, the stock sale was a success, and the company's popularity skyrocketed.
A stock certificate, on the other hand, is no longer the only way to prove corporate ownership. Stock certificates have the disadvantage of being difficult to transfer to new owners. Furthermore, they are not as legally binding as electronic ownership records. As a result, if you lose or misplace your stock certificate, you must replace it. While this may appear to be an unnecessary hassle, keep in mind that the entire process of owning stock can take weeks or even months.
Shareholders should ensure that they sign an agreement specifying the percentage of shares in the corporation that each owner owns. This is critical because if no one knows who owns what share, the corporation's profits will suffer. Furthermore, if you are unsure whether you own a certain percentage, you may be unable to obtain a loan or license if you do not have the share certificate.
