Disadvantages.—The chief disadvantages of the corporation may be summarized thus:
1. Comparative absence of personal interest of the managing officer. This is largely a theoretical drawback, inasmuch as it is usually required that the managing officer be a stockholder.
2. As a creature of the state, the corporation is subject to state legislative control. It is taxable by the state and is required to make periodic reports.
3. Its credit is dependent on the amount of its net assets and not on the fortunes of its individual owners.
4. Corporations are sometimes restricted as to the character of their business. In some states certain lines of business cannot be carried on by corporations.
5. In some states it is illegal for corporations to hold stock in other corporations.
In spite of these and other disadvantages, most of which are not serious, the advantages of the corporate form of organization far surpass those of the sole proprietorship or partnership.
The Formation of a Corporation.—Formerly a corporation could be brought into existence only by a special act of the legislature. As this method proved cumbersome and was subject to much abuse, it gave place in all states to general corporation statutes or enabling acts whereby an application in due form and according to statutory provisions is all that is necessary for organizing a corporation. Though the statutes differ for each state, they are uniform in the main points. The method of formation under the New York statute will be explained.
Certificate of Incorporation—New York State.—The form of application for a charter to do business as a corporation is known as a “certificate of incorporation.” This document must be prepared by at least three natural persons, two-thirds of which number must be citizens of the United States and at least one of whom must be a citizen of New York State. These persons are called the “incorporators.” Their certificate must be made out in the English language, signed by each incorporator, acknowledged before a notary public, and must contain:
1. The name of the corporation, in the English language. This must be different from the name of any other domestic or foreign corporation doing business in the state and must not contain in its title the words, “bank, trust, insurance, etc.”