Abstract
In Guerard Jr. and Schwartz (2007), we reported that in 2000 there were somewhat more than 25 million nonfarm business firms in the United States. About 5.045 million of these were corporations of all classes; the other 2.058 million were partnerships, and 17.805 million were nonfarm proprietorships.
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Notes
- 1.
Estimated from Statistical Abstract of the United States, 2003, US Department of Commerce, Bureau of Census, p. 495, and Survey of Current Business, 2001, US Department of Commerce.
- 2.
Ibid.
- 3.
Statistical Abstract of the United States, 2019, US Department of Commerce, Bureau of Census.
- 4.
Some kinds of enterprise may require a license. A license, however, is necessary only in certain activities—usually occupations where special skills or sanitary or hygienic considerations are involved—and not to the form of business organization.
- 5.
In case of bankruptcy, the rule of “marshaling the assets” is followed. Business assets are used first to satisfy business debt and personal assets satisfy personal debt first. Thus, if the ratio of debt to assets differs in the two categories, the rate of settlement for the different classes of creditors are not the same.
- 6.
For example, one partner may, without the express consent of the others sell part of the normal inventory to a third party. The contract would hold, even if afterward the other partners should disapprove of the price or any other term of the sale. But a contract for the sale of major equipment might not be considered binding without the consent of the other partners if such a sale appeared to be outside the normal operations of the business.
- 7.
There is a variant of the partnership known as the limited partnership where one or more partners may limit their liability to their investment in the firm. There still must be at least one general partner.
- 8.
Unless stipulated otherwise, losses are shared on the same basis as profits. If there is no express agreement, profits and losses are shared equally by the partners.
- 9.
Legally any payment of interest or salaries to the partners is not an expense but merely a way of distributing the partnership profits. However, these are generally subtracted on the accounting statements as an operating expense in order to obtain a pro forma profit figure.
- 10.
At that, the defensive weapon of calling for dissolution may be better than anything available to the minority stockholder in a small corporation.
- 11.
Unless, as sometimes happens in a closely held corporation, the major shareholder personally endorses the corporation’s note in order to obtain additional credit, or he has failed to pay in the full par value of the stock. This last possibility is not too likely in practice.
- 12.
Rights such as these can usually be voluntarily abridged. Thus a family-held corporation may require that a stockholder offer his shares to the corporation or other existing stockholders (at some fixed price) before he may sell them to someone else.
- 13.
In exercising independent choice in the appointment of officers, most boards resemble the electoral college since they are already pledged to a given set of candidates. In the rare instances of a contest for control, the management runs one slate of directors and the dissidents nominate an opposing slate.
- 14.
This is an old story. The gap between the theoretical right of the stockholders to run the firm through the election of the board of directors and their general helplessness in practice was labeled “the separation between ownership and control” by Berle and Means in The Modern Corporation and Private Property, Macmillan, 1933.
- 15.
Under the present tax laws, some closely held corporations which satisfy the requirements may elect to be taxed as partnerships. It depends on the individual situation whether this is advantageous.
- 16.
Government corporations, e.g., municipalities, authorities, etc., still usually require individual action by the legislature to get a charter. The various federal corporations such as the Federal Reserve Banks and the Federal Deposit Insurance Corporation were chartered by separate acts of Congress.
- 17.
Many national corporations are chartered in Delaware, not so much because the fees are low but because Delaware was one of the first states to allow extensive holdings of the shares of other corporations. Thus Delaware became an ideal state to charter controlling and holding companies.
- 18.
Taxes may influence the location of the business, but that is a different matter from where it is chartered.
- 19.
Of course, all sorts of possibilities have to be allowed for. In some companies a dominant stockholder may be the real ultimate power, although he may elect not to be an officer or perhaps not even hold a seat on the board.
- 20.
https://www.ibm.com/investor/governance/board-of-directors.html
- 21.
On the other hand, outside directors are likely to have many interests, perhaps as officers of other corporations or serving on the boards of many other companies. They may be able to give no more than perfunctory attention to the matters at hand.
- 22.
Stories have arisen that some company’s books are kept in cobwebby, cold vaults to discourage nosey stockholders. These stories are not wholly accurate.
- 23.
Both the preemptive right and general voting rights are commonly denied to preferred shareholders by charter provision. In a few states, it is possible to deprive the common stockholders of the preemptive right in the charter. The preemptive right on a particular issue can be waived by a vote of the shareholders.
- 24.
Rights are not given on the flotation of a security other than common stock unless the new issue is a convertible one (i.e., it can be changed into common stock at the option of the holder).
- 25.
Chelcie C. Bosland, Corporate Finance and Regulation, Ronald Press, 1949, p. 69.
References
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Brealey, R. A., & Myers, S. C. (2003). Principles of corporate finance (7th ed.). New York: McGraw-Hill/Irwin. Chapter 1.
Dewing, A. S. (1953). The financial policy of corporations (Vol. 1, 5th ed.). New York: Ronald Press. Chapters 1, 2, 3, 4.
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Guerard, J.B., Saxena, A., Gultekin, M. (2021). The Corporation and Other Forms of Business Organization. In: Quantitative Corporate Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-43547-9_2
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