In order to secure greater concentration of capital, limited liability of the enterprisers, and greater continuity of policy, the corporation form of management has been widely adopted. In this form of association persons known as stockholders secure a charter from the state which permits them to act as a single person in the eyes of the law. Unlike the partnership, the corporation can sue and be sued as a separate entity, without naming the individual members. The corporation is in effect a legal person.

The capital of the corporation is obtained by the sale of shares of stock of equal value and by the sale of bonds. The shareholders may possess one or more shares of stock, their importance in the corporation as shareholders depending upon the amount of stock which they hold. The shareholders elect a board of directors to whom they turn over the management of the business. The board of directors in turn choose a president or a manager who manages the business under their general direction and superintendence. We have just said that shares of stock are of equal value. This statement, however, requires qualification. The capital may be divided into two classes of shares of stock, preferred stock and common stock, and while in each class the shares are of equal value, the owners of the shares of preferred stock may possess privileges not possessed by owners of the shares of common stock. This fact usually makes the shares of preferred stock though nominally of the same value as the shares of common stock, actually far more valuable.

The second method of securing capital for the corporation is by the sale of bonds. Bonds are of the nature of a mortgage upon the property of the corporation, issued for a definite period of time and calling for a fixed rate of interest. In both these respects they differ from shares of stock. Since the bond holder does not undertake the risk he is not an enterpriser in the business as is the stockholder.

87. Advantages And Disadvantages Of The Corporation Form

Because of the division of the capital into small shares it is possible for many persons with small amounts of capital to cooperate in bringing together a large amount of capital for a single enterprise. It would be impracticable for these numerous persons to cooperate in a partnership.

In the second place, capitalists are often willing to invest their money in an enterprise conducted in the corporate form and with the liability of investors limited to the amount of capital subscribed for, when they would not invest in the same enterprise if it were conducted as a partnership, and with the condition that they might be called upon individually to bear the whole of a possible loss. In the third place, although individual members die or retire from the business, the corporation continues to exist as a distinct entity. A continuity of policy is thus possible which is not so likely to be found in the partnership form.

Among the disadvantages of corporate management may be cited the fact that the officials to whom the stockholders delegate the power of management often act in their own selfish interest, and in opposition to the interest of the stockholders. Often, too, in the treatment of its employees considerations of humanity which prevail under other forms of business organization are entirely lacking. For the older personal relation between employers and employee there is substituted the cash nexus. Finally, corporations are often found wanting in moral standards, and in their relations with public officials resort to bribery and corruption to secure their ends to an extent that would not be tolerated by the officials of the corporations as individuals.