Corporate Finance – The Corporation – 02

Corporate Finance – The Corporation – 02

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downloadMoving on from my first series of notes.

The Corporation enjoys almost the similar set of rights as an individual. It can sue as well as be sued.

Starting a corporation is more complicated. The incorporators must prepare articles of incorporation and a set of bylaws.

  • Name of Corporation
  • Intended Life
  • Business Purpose
  • Number of shares that the corporation is authorized to issue with class of Shares, limitations and rights allocated to each class
  • Rights granted to shareholders
  • Number of members of the initial board of directors.

Bylaws are brief possible statement of rules.

Traditionally decisions,activities of the corporation are driven by the shareholders. Shareholders appoint the board of directors who in turn appoint the top management officers.  In small corporations there is an overlap between the shareholders, board of directors and top management while in terms of large corporations it is not the case.

We have the following type of corporations :

  • Public Sector Units : State Bank of India, NTPC
  • Affiliate Firms : Tata and its affiliate firms
  • Subsidiaries and firms owned by multi-national corporations : HUL
  • Firms run by Private Professionals : Infosys

Possible benefits of corporations are as follows :

  • Easy of transfer of ownership
  • Limited Liability
  • Perpetual and not dependent on single individuals or impacted by death of people.

Disadvantages to the corporations:

In addition to the tax imposed on dividend distributed to the shareholders, there are corporate income taxes as well.

Two most commonly referred to types of companies are :

Private Limited

  • 2 to 50 members only.
  • High Taxes.
  • Restrictions on transfer of shares

Public Limited

  • 7 to no upper limit on members
  • Freely transferable shares
  • Less restrictions on transfer of shares

Companies Act provisions that impact the public limited company.

  • Share Capital
  • Further issue of share capital
  • Voting Rights
  • Issue of shares with disproportionate rights
  • Provisions restricting the powers of Board of Directors

Limited Liable Company – which operates and is taxed like a partnership but remains limited liability for the owners.


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