| | Good thread going here.
Is a corporation an "entity" in the strictest sense of the term? I suppose not: it's an organization composed of employees who carry out business operations. I would support a change in the law to reflect that. Why call a corporation a person when you can call it a "Section 6-43(a) Business" (or whatever bureaucratese term was ultimately adopted) , and still give it limited liability and all the other bells and whistles of corporations?
However, the limited liability status of corporations is critical both to the businesses themselves and to our capital markets, which function much more efficiently when investors are not paralyzed with fear that their investment in HeartyFoods, Inc. may cost them their houses and life savings when some customer who slipped on a grape sues the company and all its shareholders for all they're worth.
Incorporation is used not just by industrial behemoths, but also small businesses who would otherwise be exposed to potentially catastophic liability. For instance, my parents own and manage a small, 60-room motel, and formed a corporation (Bissell, Inc.) for the purpose. Without that limited liability, a guest who was injured on the property could sue for the full value of the motel (about $1 million), plus our house, cars, and all other assets and property. This isn't just some "artificial protection" or a "perversion" of the free market. Also, note that almost all corporations still purchase liability insurance and obsess over safety (who wants to lose half the equity in their business because they exposed their customers to needless risks?).
Jeanine wrote:
quote I'm almost certainly a minority here, but I think corporations should not be treated as 'persons' and should be disestablished on precisely these grounds. I respect commerce and business highly as a life and pursuit, but I don't respect the top-heavy collectivism of corporate culture and its social preeminance (and political power) that our legal structure promotes and protects. Well I certainly hope you're in the minority, because what you're proposing is a surefire way to bring capitalism to its knees. The so-called "top heavy collectivism" you decry is nothing of the sort--no one is forced to participate in a corporation. Many corporations certainly are subject to a high degree of central organization, and it is this organization that allows them undertake herculean tasks like building a railroad or inventing, distributing, and promoting a new gadget. Wal-Mart could not achieve its amazing rate of productivity and relentless cost-control if it allowed free reign to every store manager with his own rebel notions of how to run things.
Now, with a larger, more centralized business comes some bureaucracy, with its attendant middle-men and hangers-on. Again, all the participants are there willingly, and at any rate, it's a small price to pay for the benefits large corporations can provide. Also, much of today's corporate bureaucracy is unnecessary, as it exists to ensure compliance with the thousands of pages of federal regulations on business.
As for stock, it is simply another means for businesses to raise funds. There are other options--for instance, selling bonds or acquiring earnings through operations. However, these options can be unappealing; bonds require businesses to make regular interest payments, which can be difficult for businesses with low or unpredictable cash flows. (These same businesses usually have to pay a higher rate of interest on their bonds, as well.) And it can take more time to raise the needed funds through earnings than many businesses are willing to wait. (There is also preferred stock, which has no voting rights, is senior to common stock, and may come with other benefits such as higher, more frequent, or guaranteed dividends.)
Instead, many corporations choose to sell stock: they offer some share of ownership and control of the corporation in exchange for cash. This ownership control is one benefit of stocks, but there are also some drawbacks. Stock is junior to debt (meaning if the company fails and has to be liquidated, bondholders have the first claims on the assets). The company could choose not to pay a dividend, so there is no guarantee of a cash flow from the stock. Also, the stock owner's share in the company could be diluted if the company chooses to issue more stock in the future.
Hostile takeovers, much maligned in the press and movies like Oliver Stone's "Wall Street," are actually very important, positive influences in the economy. If a raider believes he could run a company better than the current management (or use the company's assets more efficiently elsewhere), hostile takeovers provide a means for him to do that. And, as has been mentioned, there are ways for management to defend itself, including leveraged buyouts and so-called "poison-pill" defenses (where a company under threat of takeover sells large amounts of stock at half-price to current shareholders to drive up the cost of the takeover bid). For example, in 1989, Time Inc. fended off an acquisition attempt by Paramount Communications with a poison pill.
|
|
