What is a Corporation?

1. What is a Corporation? • A corporation is a legal entity created to run a business. • There are a number of advantages of a business being a corporation: • Limited liability – the assets of the owners of a corporation (stockholders, if publicly traded) are protected • Longevity – the company can survive past the death of its owner

2. Tax impacts • Tax Advantages of Corporations: • Corporate income is not subject to Social Security, Workers Compensation and Medicare taxes; and self-employment taxes • Tax disadvantages • Corporate earnings are taxed and then taxed again as capital gains when paid out as dividends.

3. The institution most often referenced by the word "corporation" is a public or publicly traded corporation, the shares of which are traded on a public stock exchange (e.g., the New York Stock Exchange or NASDAQ in the United States) where shares of stock of corporations are bought and sold by and to the general public. • Most of the largest businesses in the world are publicly traded corporations. However, the majority of corporations are said to be closely held, privately held or close corporations, meaning that no ready market exists for the trading of shares. • Many such corporations are owned and managed by a small group of businesspeople or companies.

4. A Corporation as a “Person” • A corporation is allowed to own property and enter contracts. It can also be sued and held liable under both civil and criminal law. Among the most frequently discussed and controversial consequences of corporate personhood in the United States is the extension of a limited subset of the same constitutional rights. • Corporations were recognized as ‘people’ for purposes of the 14th Amendment in an 1886 Supreme Court Case, Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394.

5. Disadvantages of Corporations • As Adam Smith pointed out in the Wealth of Nations, when ownership is separated from management (i.e. the actual production process required to obtain the capital), the management will inevitably begin to neglect the interests of the ownership, creating dysfunction within the company. Some maintain that recent events in corporate America may serve to reinforce Smith's warnings about the dangers of legally-protected collectivist hierarchies.

6. Prosperity and American Business Increased production, new management methods, and a booming economy elevated the public image of big business in the minds of many Americans in the 1920s.

7. The Deification of business • The United States emerged from World War I as a creditor nation and bounded into a period of record-breaking prosperity. • During the 1920s, Americans turned successful business leaders into heroes. • As profits, salaries, dividends, and industrial wages rose, the gospel of big business became a national creed.

8. Productivity and technology • Between 1922 and 1928, new technology and techniques–particularly use of the assembly line–increased industrial productivity. • When American business boomed, companies needed bigger and better offices. A growing urban population required new apartment buildings, and a spreading suburban population demanded new roads and houses.

9. Why is productivity important? • More goods can be made per worker per hour • lowers prices = increases demand = increased profits = more jobs = higher wages • Standard of living goes up throughout society

10. Technology • The rapid economic growth was aided by new industries–production of light metals such as aluminum, a brand-new synthetics industry, motion picture production, radio manufacturing and, above all else, the production of automobiles • As roads and automobiles remade the horizontal landscape, skyscrapers revolutionized the vertical landscape

11. The corporate revolution • Many family-run firms could not raise the capital to compete with the corporations that came to dominate business in the 1920s. • The merger movement reduced the number of firms operating in the United States. Under pressure from Republican Presidents, the Federal Trade Commission–created to protect small businesses from takeovers–began to encourage trade associations and mergers

12. Business gets bigger • Some companies so dominated an industry that they created oligopolies. As a result, a smaller and smaller number of businesses began to wield unmatched economic power. • Small firms went out of business, while chain stores and other large companies thrived. • These chain stores could offer lower prices and better selection because they bought in bulk from suppliers and could afford more advertising

13. The Management Class • As businesses became more complicated, new college-trained business managers began to replace the company-trained general managers of the past. • Increased layers of management removed the heads of companies from contact with employees, who often did not even know the names of the people who controlled their working lives.

14. The bureaucrat Division of labor – experts are coordinated to perform complex tasks Allocation of functions – no one makes a whole product – each task is assigned Supervision – some workers are assigned the function of watching over other workers – communications between workers or between levels move in a prescribed fashion (chain of command) Identification of career within the organization – workers come to identify with the organization as a way of life – seniority, pension, and promotions are geared to this relationship

15. Labor • After the Red Scare, which dealt a serious blow to unions, corporations kept labor submissive with an effective combination of reward and punishment. • The American Plan–a variety of activities used after the war to demoralize and destroy unions–was the punishment. Activities included open-shop associations that allowed employers to blacklist union members, use of labor spies, “yellow-dog” contracts, and application of court rulings that favored management.

16. Welfare capitalism • Welfare capitalism–the combination of programs that employers used to reduce the appeal of unions–was the reward. Employers hired company doctors and nurses, organized activities such as company glee clubs, and offered benefits such as dental care, group insurance, or stock options. • Some companies also instituted “industrial democracy,” a policy in which workers could elect representatives to speak to management.

17. Corporations improve their image • As employee well-being increased efficiency and profits, welfare capitalism paid off for big business. Corporations also used welfare capitalism to restore their public image after the muckraking scandals of the Progressive Era. • The idea of public service became an ideal of big business in the 1920s, with business leaders joining service groups such as the Rotary Club.