Private corporations are divided into two subclasses, stock and non-stock. Under stock corporations are included all those organized to carry on business for a profit. Under non-stock corporations are included all those organized to carry on non-profit-making enterprises, such as libraries, hospitals, religious organizations, eleemosynary undertakings, etc.
Under the head of stock corporations we may have the following subclasses: (a) industrial or manufacturing, (b) commercial or trading, (c) public utility or quasi-public, and (d) financial, i.e., banks, trust companies, insurance companies, etc.
From the standpoint of the sovereignty to which allegiance is due, corporations are either domestic or foreign. A corporation is domestic in the state in which it is organized; foreign in any other state or country. Thus corporations chartered in New York are domestic in New York and foreign in New Jersey and Canada. A foreign corporation may be at a distinct disadvantage with a domestic corporation. To obviate this, one occasionally sees a separate incorporation in every state in which a concern intends to do business. Very infrequently is a domestic corporation subject to more stringent supervision and regulation than a foreign.
From the standpoint of the fact of incorporation, corporations may be classed as (1) de jure and (2) de facto, the former comprising those which have met fully all legal requirements for incorporation, the latter comprising those which have not met fully all legal requirements but are to all intents and purposes corporations in fact.
Method of Ownership
Business corporations are sometimes spoken of as “open” or “close.” An open corporation is one in which ownership of the stock is not held closely but is being passed about, traded in, or transferred from one owner to a new. A close corporation is one in which the stock is held very closely in order to retain control and keep profits and trade secrets within a small compass of ownership. Thus some corporations are strictly family affairs; others are held by a few families or a small group.
What is known as a corporation “sole,” while little known now, virtually exists in some close corporations, as where one man holds all but two shares of stock. The incorporation of a single individual is not legally possible in this country.
The corporation, because of its peculiar advantages over other forms of business organization, has become the accepted form for most large enterprises. The gathering together of large capital funds, the ease and efficiency of management and control, continuous life, the facility of transfer of ownership, and the limited liability of the stockholders, make the corporate form attractive to the investor and absolutely necessary to the large businesses carried on today. In some states encouragement is given the small business to incorporate; in the State of New York, for example, the minimum limit of capitalization is only $500. In a few other states the old-time fear of the corporate form is still expressed in their general corporation laws in which the minimum limit for corporate capitalization is set as high as $10,000.
Working Organization
The peculiar features of the stock corporation are the method of ownership and working organization. This latter is effected through a board of directors who are responsible directly to the owners at periodic intervals. Within the board are its officers and committees to whom duties are assigned by by-laws, custom, common consent or action of the board. Under these official heads are the rank and file of the organization—department heads, clerks, employees, etc. It is not necessary to treat here this phase of the organization further.