{"id":172,"date":"2014-09-17T00:42:04","date_gmt":"2014-09-17T00:42:04","guid":{"rendered":"https:\/\/courses.candelalearning.com\/buslegalenv\/?post_type=chapter&#038;p=172"},"modified":"2015-04-16T18:42:43","modified_gmt":"2015-04-16T18:42:43","slug":"21-4-classifications-of-corporations","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/chapter\/21-4-classifications-of-corporations\/","title":{"raw":"Classifications of Corporations","rendered":"Classifications of Corporations"},"content":{"raw":"<div class=\"bcc-box bcc-highlight\">\r\n<h3>Learning Objectives<\/h3>\r\nBy the end of this section, you will be able to:\r\n<ul id=\"mayer_1.0-ch52_s02_l01\" class=\"im_orderedlist\">\r\n\t<li>Distinguish the \u201cpublic,\u201d or municipal, corporation from the publicly held corporation.<\/li>\r\n\t<li>Explain how the tax structure for professional corporations evolved.<\/li>\r\n\t<li>Define the two types of business corporations.<\/li>\r\n<\/ul>\r\n<\/div>\r\n<div id=\"mayer_1.0-ch43_s04_s01\" class=\"im_section\">\r\n<h2 class=\"im_title im_editable im_block\">Nonprofit Corporations<\/h2>\r\nOne of the four major classifications of corporations is the <span class=\"im_margin_term\"><span class=\"im_glossterm\">nonprofit corporation<\/span><\/span> (also called not-for-profit corporation). It is defined in the American Bar Association\u2019s Model Non-Profit Corporation Act as \u201ca corporation no part of the income of <em class=\"im_emphasis\">which<\/em> is distributable to its members, directors or officers.\u201d Nonprofit corporations may be formed under this law for charitable, educational, civil, religious, social, and cultural purposes, among others.\r\n\r\n<\/div>\r\n<div id=\"mayer_1.0-ch43_s04_s02\" class=\"im_section\">\r\n<h2 class=\"im_title im_editable im_block\">Public Corporations<\/h2>\r\nThe true public corporation is a governmental entity. It is often called a <span class=\"im_margin_term\"><span class=\"im_glossterm\">municipal corporation<\/span><\/span>, to distinguish it from the publicly held corporation, which is sometimes also referred to as a \u201cpublic\u201d corporation, although it is in fact private (i.e., it is not governmental). Major cities and counties, and many towns, villages, and special governmental units, such as sewer, transportation, and public utility authorities, are incorporated. These corporations are not organized for profit, do not have shareholders, and operate under different statutes than do business corporations.\r\n\r\n<\/div>\r\n<div id=\"mayer_1.0-ch43_s04_s03\" class=\"im_section\">\r\n<h2 class=\"im_title im_editable im_block\">Professional Corporations<\/h2>\r\nUntil the 1960s, lawyers, doctors, accountants, and other professionals could not practice their professions in corporate form. This inability, based on a fear of professionals\u2019 being subject to the direction of the corporate owners, was financially disadvantageous. Under the federal income tax laws then in effect, corporations could establish far better pension plans than could the self-employed. During the 1960s, the states began to let professionals incorporate, but the IRS balked, denying them many tax benefits. In 1969, the IRS finally conceded that it would tax a <span class=\"im_margin_term\"><span class=\"im_glossterm\">professional corporation<\/span><\/span> just as it would any other corporation, so that professionals could, from that time on, place a much higher proportion of tax-deductible income into a tax-deferred pension. That decision led to a burgeoning number of professional corporations.\r\n\r\n<\/div>\r\n<div id=\"mayer_1.0-ch43_s04_s04\" class=\"im_section\">\r\n<h2 class=\"im_title im_editable im_block\">Business Corporations<\/h2>\r\n<div id=\"mayer_1.0-ch43_s04_s04_s01\" class=\"im_section\">\r\n<h3 class=\"im_title im_editable im_block\">The Two Types<\/h3>\r\nIt is the <span class=\"im_margin_term\"><span class=\"im_glossterm\">business corporation<\/span><\/span> proper that we focus on in this unit. There are two broad types of business corporations: publicly held (or public) and closely held (or close or private) corporations. Again, both types are private in the sense that they are not governmental.\r\n\r\nThe publicly held corporation is one in which stock is widely held or available for wide public distribution through such means as trading on a national or regional stock exchange. Its managers, if they are also owners of stock, usually constitute a small percentage of the total number of shareholders and hold a small amount of stock relative to the total shares outstanding. Few, if any, shareholders of public corporations know their fellow shareholders.\r\n\r\nBy contrast, the shareholders of the closely held corporation are fewer in number. Shares in a closely held corporation could be held by one person, and usually by no more than thirty. Shareholders of the closely held corporation often share family ties or have some other association that permits each to know the others.\r\n\r\nThough most closely held corporations are small, no economic or legal reason prevents them from being large. Some are huge, having annual sales of several billion dollars each. Roughly 90 percent of US corporations are closely held.\r\n\r\nThe giant publicly held companies with more than $1 billion in assets and sales, with initials such as IBM and GE, constitute an exclusive group. Publicly held corporations outside this elite class fall into two broad (nonlegal) categories: those that are quoted on stock exchanges and those whose stock <em class=\"im_emphasis\">is<\/em> too widely dispersed to be called closely held but is not traded on exchanges.\r\n<div id=\"mayer_1.0-ch43_s04_s04_s01_n01\" class=\"im_key_takeaways im_editable im_block textbox\">\r\n<h3 class=\"im_title\">Key Takeaway<\/h3>\r\nThere are four major classifications of corporations: (1) nonprofit, (2) municipal, (3) professional, and (4) business. Business corporations are divided into two types, publicly held and closely held corporations.\r\n\r\n<\/div>\r\n<div class=\"bcc-box bcc-info\">\r\n<h3>Exercises<\/h3>\r\n<section id=\"self-check-questions\">\r\n<ol>\r\n\t<li>Why did professionals, such as doctors, lawyers, and accountants, wait so long to incorporate?<\/li>\r\n\t<li>Distinguish a publicly held corporation from a closely held one.<\/li>\r\n\t<li>Are most corporations in the US publicly or closely held? Are closely held corporations subject to different provisions than publicly held ones?<\/li>\r\n<\/ol>\r\n<\/section><\/div>\r\n<div id=\"mayer_1.0-ch52_s02_s06_n02\" class=\"im_exercises im_editable im_block\"><\/div>\r\n<\/div>\r\n<\/div>","rendered":"<div class=\"bcc-box bcc-highlight\">\n<h3>Learning Objectives<\/h3>\n<p>By the end of this section, you will be able to:<\/p>\n<ul id=\"mayer_1.0-ch52_s02_l01\" class=\"im_orderedlist\">\n<li>Distinguish the \u201cpublic,\u201d or municipal, corporation from the publicly held corporation.<\/li>\n<li>Explain how the tax structure for professional corporations evolved.<\/li>\n<li>Define the two types of business corporations.<\/li>\n<\/ul>\n<\/div>\n<div id=\"mayer_1.0-ch43_s04_s01\" class=\"im_section\">\n<h2 class=\"im_title im_editable im_block\">Nonprofit Corporations<\/h2>\n<p>One of the four major classifications of corporations is the <span class=\"im_margin_term\"><span class=\"im_glossterm\">nonprofit corporation<\/span><\/span> (also called not-for-profit corporation). It is defined in the American Bar Association\u2019s Model Non-Profit Corporation Act as \u201ca corporation no part of the income of <em class=\"im_emphasis\">which<\/em> is distributable to its members, directors or officers.\u201d Nonprofit corporations may be formed under this law for charitable, educational, civil, religious, social, and cultural purposes, among others.<\/p>\n<\/div>\n<div id=\"mayer_1.0-ch43_s04_s02\" class=\"im_section\">\n<h2 class=\"im_title im_editable im_block\">Public Corporations<\/h2>\n<p>The true public corporation is a governmental entity. It is often called a <span class=\"im_margin_term\"><span class=\"im_glossterm\">municipal corporation<\/span><\/span>, to distinguish it from the publicly held corporation, which is sometimes also referred to as a \u201cpublic\u201d corporation, although it is in fact private (i.e., it is not governmental). Major cities and counties, and many towns, villages, and special governmental units, such as sewer, transportation, and public utility authorities, are incorporated. These corporations are not organized for profit, do not have shareholders, and operate under different statutes than do business corporations.<\/p>\n<\/div>\n<div id=\"mayer_1.0-ch43_s04_s03\" class=\"im_section\">\n<h2 class=\"im_title im_editable im_block\">Professional Corporations<\/h2>\n<p>Until the 1960s, lawyers, doctors, accountants, and other professionals could not practice their professions in corporate form. This inability, based on a fear of professionals\u2019 being subject to the direction of the corporate owners, was financially disadvantageous. Under the federal income tax laws then in effect, corporations could establish far better pension plans than could the self-employed. During the 1960s, the states began to let professionals incorporate, but the IRS balked, denying them many tax benefits. In 1969, the IRS finally conceded that it would tax a <span class=\"im_margin_term\"><span class=\"im_glossterm\">professional corporation<\/span><\/span> just as it would any other corporation, so that professionals could, from that time on, place a much higher proportion of tax-deductible income into a tax-deferred pension. That decision led to a burgeoning number of professional corporations.<\/p>\n<\/div>\n<div id=\"mayer_1.0-ch43_s04_s04\" class=\"im_section\">\n<h2 class=\"im_title im_editable im_block\">Business Corporations<\/h2>\n<div id=\"mayer_1.0-ch43_s04_s04_s01\" class=\"im_section\">\n<h3 class=\"im_title im_editable im_block\">The Two Types<\/h3>\n<p>It is the <span class=\"im_margin_term\"><span class=\"im_glossterm\">business corporation<\/span><\/span> proper that we focus on in this unit. There are two broad types of business corporations: publicly held (or public) and closely held (or close or private) corporations. Again, both types are private in the sense that they are not governmental.<\/p>\n<p>The publicly held corporation is one in which stock is widely held or available for wide public distribution through such means as trading on a national or regional stock exchange. Its managers, if they are also owners of stock, usually constitute a small percentage of the total number of shareholders and hold a small amount of stock relative to the total shares outstanding. Few, if any, shareholders of public corporations know their fellow shareholders.<\/p>\n<p>By contrast, the shareholders of the closely held corporation are fewer in number. Shares in a closely held corporation could be held by one person, and usually by no more than thirty. Shareholders of the closely held corporation often share family ties or have some other association that permits each to know the others.<\/p>\n<p>Though most closely held corporations are small, no economic or legal reason prevents them from being large. Some are huge, having annual sales of several billion dollars each. Roughly 90 percent of US corporations are closely held.<\/p>\n<p>The giant publicly held companies with more than $1 billion in assets and sales, with initials such as IBM and GE, constitute an exclusive group. Publicly held corporations outside this elite class fall into two broad (nonlegal) categories: those that are quoted on stock exchanges and those whose stock <em class=\"im_emphasis\">is<\/em> too widely dispersed to be called closely held but is not traded on exchanges.<\/p>\n<div id=\"mayer_1.0-ch43_s04_s04_s01_n01\" class=\"im_key_takeaways im_editable im_block textbox\">\n<h3 class=\"im_title\">Key Takeaway<\/h3>\n<p>There are four major classifications of corporations: (1) nonprofit, (2) municipal, (3) professional, and (4) business. Business corporations are divided into two types, publicly held and closely held corporations.<\/p>\n<\/div>\n<div class=\"bcc-box bcc-info\">\n<h3>Exercises<\/h3>\n<section id=\"self-check-questions\">\n<ol>\n<li>Why did professionals, such as doctors, lawyers, and accountants, wait so long to incorporate?<\/li>\n<li>Distinguish a publicly held corporation from a closely held one.<\/li>\n<li>Are most corporations in the US publicly or closely held? Are closely held corporations subject to different provisions than publicly held ones?<\/li>\n<\/ol>\n<\/section>\n<\/div>\n<div id=\"mayer_1.0-ch52_s02_s06_n02\" class=\"im_exercises im_editable im_block\"><\/div>\n<\/div>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-172\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Business and the Legal Environment. <strong>Authored by<\/strong>: Anonymous. <strong>Provided by<\/strong>: Anonymous. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/2012books.lardbucket.org\/books\/business-and-the-legal-environment\/\">http:\/\/2012books.lardbucket.org\/books\/business-and-the-legal-environment\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-sa\/4.0\/\">CC BY-NC-SA: Attribution-NonCommercial-ShareAlike<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":5,"menu_order":137,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Business and the Legal Environment\",\"author\":\"Anonymous\",\"organization\":\"Anonymous\",\"url\":\"http:\/\/2012books.lardbucket.org\/books\/business-and-the-legal-environment\/\",\"project\":\"\",\"license\":\"cc-by-nc-sa\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-172","chapter","type-chapter","status-publish","hentry"],"part":763,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters\/172","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/users\/5"}],"version-history":[{"count":4,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters\/172\/revisions"}],"predecessor-version":[{"id":990,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters\/172\/revisions\/990"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/parts\/763"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters\/172\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/media?parent=172"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapter-type?post=172"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/contributor?post=172"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/license?post=172"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}