Professor`s name

Coursename

TheHistory and Purpose of the Modern Corporation

Acorporation can either be a sole proprietorship, partnership, LimitedLiability Company or a private company. A corporation is alsoreferred to as acompanyor a limited company.Inthe1870s,individualsor group of people ran most businesses in America.Therewas a lot of revolution in America around the 19thcentury,fromthe time of civil war to the present,concerningthe way people manage and run their businesses.Outof the various forms of business entities such as soleproprietorships and partnerships, the company always stood out due toits various advantages over the other two forms of businesses [ CITATION Mar04 p 392 l 1033 ].

Corporations became America’s economic key institutions that contributed in therapid development of the country (Coase 398).Though,it was observed as dangerous and only legitimate in specificbusinesses, it brought some changes and benefit to the country as awhole.Thereare different reasons that led to the formation of corporations,whichbrought about several advantages,disadvantages,andimpact on the democratic society of United States of America.While corporations have a limited liability characteristic thatexpose the shareholders and other investors to financial riskassociated with the loss of their investment and in case acorporation is unable to pay its debts, the shareholders cannot becalled upon to pay the debts because the corporation is considered tobe a separate legal person from its owners and renders the ownersimmunity against any wrongdoings, both illegal and criminal acts,Corporations are beneficial and extremely relevant in the modern daybusiness environment and for economic development because It iseasier for a corporation to raise capital compared to the other formsof business entities through the issue of share capital as well asaccess debt capital from the borrowing institutions since they haveassets that can be used as loan collateral , in addition to the rightto transfer shares freely therefore shareholders can easily disposethe shares in a corporation at any time depending on the marketconditions, and most importantly the limited liability clause in thatthe shareholders or owners of the business are not legallyresponsible for the debts of a corporation. .

TheEmergence and History

Theemergence and history of Modern Corporation datesback to 200 years. The Dutch East India Company (VOC) is consideredto be the first modern corporation. Its charter,VereenigdeOost-Indische Compagnie datesback to 1602. However, the charter did not include all the legalpersonality features of a corporation [CITATION Gil01 p 329-357 l 1033 ].TheBritish East India Company (EIC) and Dutch East India Company (VOC)contributed significantly to the growth of the modern corporations.

Inthe 1870s, venture capitalists or some financial institutionsfinanced many businesses such as sole proprietors or partnerships.Since during this era there were no big venture capitalists or largefinancial institutions such as banks that issue ready capital,prosperitywas only for the lucky few who were born into wealthy families.Also,ifdebtors were unable to pay a debt,itwas transferable to the other family members or relatives.Toadd on in worse case scenarios, it led to the incarceration ofrelatives or family members,onbehalf of the accused individual who failed to pay the debt.

Inthe mid 19th century, venture capitalists and financial institutionsfeared to invest in various businesses because the shares of thebusinesses were not transferable to the public since there werestrict rules once a person joined, regardless of whether the companywas poorly performing and the investor would prefer to invest inother profitable or high prospect businesses.However,inthe last years of the19th century there were major transformations onthe operations and structures of businesses in America.Therewas the need for businesses that the owners and the business were twoseparate entities, thereby the members or management was not liablefor the debts of the business.This moved encouraged numerous financiers to delve into investing inthese corporations since they knew their investment was to a largeextent secure.

Variousreasons led to the emergence of modern corporations. To begin with,Modern Corporations were introduced to solve the problem of havingthe same people owning and managing the businesses. Early businessesonly employed a few people, but the owners themselves were in chargeof overseeing all the operations of the business. However,theformation of Modern Corporation led to business management done byqualified professional [ CITATION Wil81 p 1546 l 1033 ].

Theneed for honesty in a distant branch created the necessity for ModernCorporations.However,asbig business continued to grow there was aneedfor the use of bureaucratic hierarchiessince thesuccess of the business relied on a centralized coordination.Tobe able to achieve these big businesses formed formal administrativebusiness structures.Therewas the establishment of different managerial levels.Therewas also the creation of understandably outlined authorities.Therewas formal use of rules to assist in the governance of thecorporation operations.Thesehelped in the creation of“middleclass”levelfor corporation’swhite-collaremployees,thiswas different from the tradition middle-classlevel that involved independent professionals,farmers,andshopkeepers [CITATION Wil81 p 1537-1568 l 1033 ].

Mostof the earlierbusinesstransactions were done within one locality for example a town,andfrom a single factory or office.Therefore,townresidents were their main customers.However,therewas theneedfor growth of businesses to other localities hence the formation ofnew corporation business in geographical scale and size.Thismeant that their transactions were scattered widely indifferentlocations.

Mostof the early businesses specialized in a single kind of businessoperations for example if someone was a merchant,manufactureror wholesaler they would only handle that particular field or productthat they have.However,withthe introduction of the Modern Corporation businesses were involvedin several kinds of business operations.Forexample,theoperations of a USA steel company was mining from the ground theirown ore,thentake it to its mill,processit to steel,thento any desired finished product,andthen transport the finished products to wholesalers

Advantagesand Disadvantages of Modern Corporations

Advantages

Corporationshave both strengths and weaknesses acorporationis reflected to be a legal person separate from its founders. In thecase of Salomonv Salomon and Company Limited,the House of Lords argued that a corporation is a different beingfrom its owners or subscribers to the memorandum [CITATION Ber91 p 187 l 1033 ].

Oneof the advantages of using a corporation to your business is that itis limited liability.Thatis the shareholders or owners of the business are not legallyresponsible for the debts of a corporation.Ifthe corporation is incapable of paying its creditors,thecreditors have no right to demand payment from the owners orshareholders.TheGlobal Financial Crisis in 2008-2009, for example, had severe effectson the liquidity position of most companies. The financial crisis ledto the liquidation of some ASX listed companies such as HolmanBrothers Limited. The owners of such companies wouldn’t be liablefor the debts and losses [ CITATION Nia12 p 274 l 1033 ].

Thecorporation’s properties belong to the company and not to theindividual shareholders. In the case of Macaurav Northern Assurance Co,an individual doesn’t have the right to insure the company propertyor make drawings from it.Acorporation has the right to transfer shares freely unless restrictedby the company’s articles [CITATION Gra03 p 923-934 l 1033 ].Ashareholder can easily dispose the shares in a corporation at anytime depending on the market conditions. A corporation has perpetualexistence,inother words, a legal entity that is separate from its owners andshareholders.Therefore,inthecaseof death or changes in the ownership of the corporation,thisdoes not affect the corporation as it has the legal right to continueas a business.

Itis easier for a corporation to raise capital compared to the otherforms of business entities through the issue of share capital.Corporations can easily access debt capital from the borrowinginstitutions since they have assets that can be used as loancollateral [ CITATION RHC37 p 392 l 1033 ].However, over-reliance on debt capital can expose the corporations toliquidity problems. Also, corporations can be used as exceptionalasset security vehicles. By leveraging the authorized acts, you canstructure your assets within these permitted tools so that you canexploit the security presented through corporations. In addition,operating a business as a corporation indicates that the corporate ispractical this is attractive to investors and creditors. Moreover,corporations can set fiscal year end dates which allow one to choosetheir tax year ends. This elasticity provide opportunity forcommercial management prospects where you can save money on taxes bymoving the earnings between entities from one tax year to another anduse your corporation to make your money work well for you.

Disadvantages

Corporations have one majordisadvantage in terms of their limited liability characteristics thatexposethe shareholders and other investors to financial risk associatedwith the loss of their investment. In case a corporation is unable topay its debts, the shareholders cannot be called upon to pay thedebts because the corporation is considered to be a separate legalperson from its owners. However, the investments made by theshareholders will be lost if the corporation is liquidated. Acorporation is considered to be an “invisible friend” capable ofowning property. The legal status of a corporation renders the ownersimmunity against any wrongdoings, both illegal and criminal acts.Corporations lead to the creation of “legally irresponsibleprofit-maximizers” (Grant 927). The owners have no concern on howthe corporation generates profits.

Theright to transfer shares freely can be abused by persons intending totake over the corporation. Theshareholders may threaten the corporation with a forced take over toa competitor corporation through transfer of shares to thecompetitor.

Agencytheory is a main disadvantage of corporations.Public companies practice stewardship accounting. In stewardshipaccounting, the shareholders provide resources to an organization.The management of the public company should invest in projects thatare going to maximize on shareholders’ wealth. The separation ofownership and management may create conflict between the shareholdersand the management. The management may undertake unprofitableinvestments. The management may also indulge in fraudulent practicessuch as altering the financial statements to conceal errors andfrauds.

EnronCorporation, for example, was the sixth largest energy company in theworld. However, the company collapsed as a result of fraudulentactivities by the top executives. The corporation’s earnings hadbeen overstated. The top executive disposed their investments inEnron before its downfall. Most of the top executives were jailedafter the investigations [ CITATION Mar02 p 4 l 1033 ].

The corporate form of business hadvarious impacts to the democratic society.A democratic society aims at ensuring equal rights, freedom of speechand tolerance views of the minorities. The emergence of corporationscan be engines of positive change or negative change in thedemocratic society. The effect can be on general populations throughadvertising in the mainstream media, on public policy and governmentand international institutions. Corporations have major influences onour lives. Out of the 100 largest economies, for example, 51 arecorporations and 49 are countries [ CITATION Anu02 l 1033 ].

Theemergence of corporations has led to the “corporate libertarianism”where the rights and freedoms of the corporations were above those ofindividuals. Corporations are prone to evildoing to the democraticsociety. The cases of McDonald, AH Robins, and British AmericanTobacco explains some of the evils committed against the democraticsociety. Corporations promote criminal behavior amongst thedemocratic society. As discussed, the corporate owners will indulgein any activity at the expense of human life so as to make profit.The corporation can be viewed as a source of evil. In most cases, thelaw provides for penalizing the offenders without criminalizing them.The wealth owners of the corporations hide behind the corporate veil.

Thecorporate form has led to wealth-owners having a strong influence inthe state affairs regardless of their impacts on the ordinary citizen[CITATION HJG02 p 90 l 1033 ].Thecorporate form has had an impact on the cultural, physical andpolitical environments across the globe. Thecorporations have claimed the individuals` human right of freespeech.Before the 1886 ruling, corporations were not allowed to give moneyto either the politicians or political parties. The corporationscouldn’t influence elections.

However,after the ruling, corporations took control of the political partiesand financed politicians. Corporations have more rights than people.The increasing size and wealth of the corporations have a significantinfluence on the economic and political power denying the humanpersons the privilege they had before. In most cases, the ordinarycitizens normally enjoy the economic policies that are favored by thecorporations [ CITATION Kay57 p 316 l 1033 ].Thereforecorporations are bad because their legal protections, politicalinfluence and wealth accretion have exceeded those availableto citizens. Also, the corporations have grabbed citizens’ contractwith their nominated legislatures so the government mainly serve theinterests of the corporate rather than those of the people.

Works Cited

Berle, Adolf Augustus &amp Gardiner Gardiner Coit. The modern corporation and private property. Transaction publishers, 1991.

Blair, Margaret M. &quotThe Neglected Benefits of the Corporate Form: Entity Status and the Separation of Asset Ownership from Control, in Corporate Governance and Firm Organization.&quot Microfoundations and Structural Form 45 (2004): 387-455.

Chen, Ruixue. &quotEffects of McDonalds on Younger Chinese Generation’s Lives.&quot August 2014. University of Missouri. 13 November 2015 &lthttps://artifactsjournal.missouri.edu/2014/08/effects-of-mcdonalds-on-younger-chinese-generations-lives/&gt.

Coase, R. H. &quotThe Nature of the Firm.&quot Economica (1937): 386-405.

Gilens, Benjamin I.Page &amp Martin. &quotTesting Theories of American Politics: Elites, Interest Groups, and Average Citizens.&quot American Political Science Association Vol 12/ No.3 (2014): 564-581.

Gilson, Ronald J. &quotGlobalizing corporate governance: Convergence of form or function.&quot The American Journal of Comparative Law&nbsp (2001): 329-357.

Glasbeek, H. J. Wealth by Stealth: Corporate Crime, Corporate Law, and the Perversion of Democracy. Ann Arbor, MI: Between The Lines, 2002.

Grant, Gerry H. &quotThe evolution of corporate governance and its impact on modern corporate America.&quot Management Decision 41.9 (2003): 923-934.

Jickling, Mark. &quotThe Enron Collapse: An Overview of Financial Issues.&quot Congressional Research Service: RS21135: February 4, 2002 (2002): 1-5.

Kaysen, Carl. &quotThe social significance of the modern corporation.&quot The American Economic Review&nbsp (1957): 311-319.

Lasfer, Mohammed Alzahrani and Meziane. &quotDividend Policy and Stock Price Volatility.&quot Journal of Business (2008): 679-897.

Nace, Ted. Gangs of America: The Rise of Corporate Power and the Disabling of Democracy. San Francisco: Berrett-Koehler Publishers, 2005.

Niamh Moloney, Jennifer G. Hill, John C. Coffee, Jr. The Regulatory Aftermath of the Global Financial Crisis. New York: Cambridge University Press, 2012.

Shah, Anup. &quotThe Rise of Corporations.&quot 05 December 2002. Global Issues: Social, Political, Economic and Environmental Issues That Affect Us All. 9 November 2015 &lthttp://www.globalissues.org/article/234/the-rise-of-corporations&gt.

Williamson, Oliver E. &quotThe modern corporation: origins, evolution, attributes.&quot Journal of economic literature (1981): 1537-1568.

Professor`s name

Coursename

TheHistory and Purpose of the Modern Corporation

Acorporation can either be a sole proprietorship, partnership, LimitedLiability Company or a private company. A corporation is alsoreferred to as acompanyor a limited company.Inthe1870s,individualsor group of people ran most businesses in America.Therewas a lot of revolution in America around the 19thcentury,fromthe time of civil war to the present,concerningthe way people manage and run their businesses.Outof the various forms of business entities such as soleproprietorships and partnerships, the company always stood out due toits various advantages over the other two forms of businesses [ CITATION Mar04 p 392 l 1033 ].

Corporations became America’s economic key institutions that contributed in therapid development of the country (Coase 398).Though,it was observed as dangerous and only legitimate in specificbusinesses, it brought some changes and benefit to the country as awhole.Thereare different reasons that led to the formation of corporations,whichbrought about several advantages,disadvantages,andimpact on the democratic society of United States of America.While corporations have a limited liability characteristic thatexpose the shareholders and other investors to financial riskassociated with the loss of their investment and in case acorporation is unable to pay its debts, the shareholders cannot becalled upon to pay the debts because the corporation is considered tobe a separate legal person from its owners and renders the ownersimmunity against any wrongdoings, both illegal and criminal acts,Corporations are beneficial and extremely relevant in the modern daybusiness environment and for economic development because It iseasier for a corporation to raise capital compared to the other formsof business entities through the issue of share capital as well asaccess debt capital from the borrowing institutions since they haveassets that can be used as loan collateral , in addition to the rightto transfer shares freely therefore shareholders can easily disposethe shares in a corporation at any time depending on the marketconditions, and most importantly the limited liability clause in thatthe shareholders or owners of the business are not legallyresponsible for the debts of a corporation. .

TheEmergence and History

Theemergence and history of Modern Corporation datesback to 200 years. The Dutch East India Company (VOC) is consideredto be the first modern corporation. Its charter,VereenigdeOost-Indische Compagnie datesback to 1602. However, the charter did not include all the legalpersonality features of a corporation [CITATION Gil01 p 329-357 l 1033 ].TheBritish East India Company (EIC) and Dutch East India Company (VOC)contributed significantly to the growth of the modern corporations.

Inthe 1870s, venture capitalists or some financial institutionsfinanced many businesses such as sole proprietors or partnerships.Since during this era there were no big venture capitalists or largefinancial institutions such as banks that issue ready capital,prosperitywas only for the lucky few who were born into wealthy families.Also,ifdebtors were unable to pay a debt,itwas transferable to the other family members or relatives.Toadd on in worse case scenarios, it led to the incarceration ofrelatives or family members,onbehalf of the accused individual who failed to pay the debt.

Inthe mid 19th century, venture capitalists and financial institutionsfeared to invest in various businesses because the shares of thebusinesses were not transferable to the public since there werestrict rules once a person joined, regardless of whether the companywas poorly performing and the investor would prefer to invest inother profitable or high prospect businesses.However,inthe last years of the19th century there were major transformations onthe operations and structures of businesses in America.Therewas the need for businesses that the owners and the business were twoseparate entities, thereby the members or management was not liablefor the debts of the business.This moved encouraged numerous financiers to delve into investing inthese corporations since they knew their investment was to a largeextent secure.

Variousreasons led to the emergence of modern corporations. To begin with,Modern Corporations were introduced to solve the problem of havingthe same people owning and managing the businesses. Early businessesonly employed a few people, but the owners themselves were in chargeof overseeing all the operations of the business. However,theformation of Modern Corporation led to business management done byqualified professional [ CITATION Wil81 p 1546 l 1033 ].

Theneed for honesty in a distant branch created the necessity for ModernCorporations.However,asbig business continued to grow there was aneedfor the use of bureaucratic hierarchiessince thesuccess of the business relied on a centralized coordination.Tobe able to achieve these big businesses formed formal administrativebusiness structures.Therewas the establishment of different managerial levels.Therewas also the creation of understandably outlined authorities.Therewas formal use of rules to assist in the governance of thecorporation operations.Thesehelped in the creation of“middleclass”levelfor corporation’swhite-collaremployees,thiswas different from the tradition middle-classlevel that involved independent professionals,farmers,andshopkeepers [CITATION Wil81 p 1537-1568 l 1033 ].

Mostof the earlierbusinesstransactions were done within one locality for example a town,andfrom a single factory or office.Therefore,townresidents were their main customers.However,therewas theneedfor growth of businesses to other localities hence the formation ofnew corporation business in geographical scale and size.Thismeant that their transactions were scattered widely indifferentlocations.

Mostof the early businesses specialized in a single kind of businessoperations for example if someone was a merchant,manufactureror wholesaler they would only handle that particular field or productthat they have.However,withthe introduction of the Modern Corporation businesses were involvedin several kinds of business operations.Forexample,theoperations of a USA steel company was mining from the ground theirown ore,thentake it to its mill,processit to steel,thento any desired finished product,andthen transport the finished products to wholesalers

Advantagesand Disadvantages of Modern Corporations

Advantages

Corporationshave both strengths and weaknesses acorporationis reflected to be a legal person separate from its founders. In thecase of Salomonv Salomon and Company Limited,the House of Lords argued that a corporation is a different beingfrom its owners or subscribers to the memorandum [CITATION Ber91 p 187 l 1033 ].

Oneof the advantages of using a corporation to your business is that itis limited liability.Thatis the shareholders or owners of the business are not legallyresponsible for the debts of a corporation.Ifthe corporation is incapable of paying its creditors,thecreditors have no right to demand payment from the owners orshareholders.TheGlobal Financial Crisis in 2008-2009, for example, had severe effectson the liquidity position of most companies. The financial crisis ledto the liquidation of some ASX listed companies such as HolmanBrothers Limited. The owners of such companies wouldn’t be liablefor the debts and losses [ CITATION Nia12 p 274 l 1033 ].

Thecorporation’s properties belong to the company and not to theindividual shareholders. In the case of Macaurav Northern Assurance Co,an individual doesn’t have the right to insure the company propertyor make drawings from it.Acorporation has the right to transfer shares freely unless restrictedby the company’s articles [CITATION Gra03 p 923-934 l 1033 ].Ashareholder can easily dispose the shares in a corporation at anytime depending on the market conditions. A corporation has perpetualexistence,inother words, a legal entity that is separate from its owners andshareholders.Therefore,inthecaseof death or changes in the ownership of the corporation,thisdoes not affect the corporation as it has the legal right to continueas a business.

Itis easier for a corporation to raise capital compared to the otherforms of business entities through the issue of share capital.Corporations can easily access debt capital from the borrowinginstitutions since they have assets that can be used as loancollateral [ CITATION RHC37 p 392 l 1033 ].However, over-reliance on debt capital can expose the corporations toliquidity problems. Also, corporations can be used as exceptionalasset security vehicles. By leveraging the authorized acts, you canstructure your assets within these permitted tools so that you canexploit the security presented through corporations. In addition,operating a business as a corporation indicates that the corporate ispractical this is attractive to investors and creditors. Moreover,corporations can set fiscal year end dates which allow one to choosetheir tax year ends. This elasticity provide opportunity forcommercial management prospects where you can save money on taxes bymoving the earnings between entities from one tax year to another anduse your corporation to make your money work well for you.

Disadvantages

Corporations have one majordisadvantage in terms of their limited liability characteristics thatexposethe shareholders and other investors to financial risk associatedwith the loss of their investment. In case a corporation is unable topay its debts, the shareholders cannot be called upon to pay thedebts because the corporation is considered to be a separate legalperson from its owners. However, the investments made by theshareholders will be lost if the corporation is liquidated. Acorporation is considered to be an “invisible friend” capable ofowning property. The legal status of a corporation renders the ownersimmunity against any wrongdoings, both illegal and criminal acts.Corporations lead to the creation of “legally irresponsibleprofit-maximizers” (Grant 927). The owners have no concern on howthe corporation generates profits.

Theright to transfer shares freely can be abused by persons intending totake over the corporation. Theshareholders may threaten the corporation with a forced take over toa competitor corporation through transfer of shares to thecompetitor.

Agencytheory is a main disadvantage of corporations.Public companies practice stewardship accounting. In stewardshipaccounting, the shareholders provide resources to an organization.The management of the public company should invest in projects thatare going to maximize on shareholders’ wealth. The separation ofownership and management may create conflict between the shareholdersand the management. The management may undertake unprofitableinvestments. The management may also indulge in fraudulent practicessuch as altering the financial statements to conceal errors andfrauds.

EnronCorporation, for example, was the sixth largest energy company in theworld. However, the company collapsed as a result of fraudulentactivities by the top executives. The corporation’s earnings hadbeen overstated. The top executive disposed their investments inEnron before its downfall. Most of the top executives were jailedafter the investigations [ CITATION Mar02 p 4 l 1033 ].

The corporate form of business hadvarious impacts to the democratic society.A democratic society aims at ensuring equal rights, freedom of speechand tolerance views of the minorities. The emergence of corporationscan be engines of positive change or negative change in thedemocratic society. The effect can be on general populations throughadvertising in the mainstream media, on public policy and governmentand international institutions. Corporations have major influences onour lives. Out of the 100 largest economies, for example, 51 arecorporations and 49 are countries [ CITATION Anu02 l 1033 ].

Theemergence of corporations has led to the “corporate libertarianism”where the rights and freedoms of the corporations were above those ofindividuals. Corporations are prone to evildoing to the democraticsociety. The cases of McDonald, AH Robins, and British AmericanTobacco explains some of the evils committed against the democraticsociety. Corporations promote criminal behavior amongst thedemocratic society. As discussed, the corporate owners will indulgein any activity at the expense of human life so as to make profit.The corporation can be viewed as a source of evil. In most cases, thelaw provides for penalizing the offenders without criminalizing them.The wealth owners of the corporations hide behind the corporate veil.

Thecorporate form has led to wealth-owners having a strong influence inthe state affairs regardless of their impacts on the ordinary citizen[CITATION HJG02 p 90 l 1033 ].Thecorporate form has had an impact on the cultural, physical andpolitical environments across the globe. Thecorporations have claimed the individuals` human right of freespeech.Before the 1886 ruling, corporations were not allowed to give moneyto either the politicians or political parties. The corporationscouldn’t influence elections.

However,after the ruling, corporations took control of the political partiesand financed politicians. Corporations have more rights than people.The increasing size and wealth of the corporations have a significantinfluence on the economic and political power denying the humanpersons the privilege they had before. In most cases, the ordinarycitizens normally enjoy the economic policies that are favored by thecorporations [ CITATION Kay57 p 316 l 1033 ].Thereforecorporations are bad because their legal protections, politicalinfluence and wealth accretion have exceeded those availableto citizens. Also, the corporations have grabbed citizens’ contractwith their nominated legislatures so the government mainly serve theinterests of the corporate rather than those of the people.

Works Cited

Berle, Adolf Augustus &amp Gardiner Gardiner Coit. The modern corporation and private property. Transaction publishers, 1991.

Blair, Margaret M. &quotThe Neglected Benefits of the Corporate Form: Entity Status and the Separation of Asset Ownership from Control, in Corporate Governance and Firm Organization.&quot Microfoundations and Structural Form 45 (2004): 387-455.

Chen, Ruixue. &quotEffects of McDonalds on Younger Chinese Generation’s Lives.&quot August 2014. University of Missouri. 13 November 2015 &lthttps://artifactsjournal.missouri.edu/2014/08/effects-of-mcdonalds-on-younger-chinese-generations-lives/&gt.

Coase, R. H. &quotThe Nature of the Firm.&quot Economica (1937): 386-405.

Gilens, Benjamin I.Page &amp Martin. &quotTesting Theories of American Politics: Elites, Interest Groups, and Average Citizens.&quot American Political Science Association Vol 12/ No.3 (2014): 564-581.

Gilson, Ronald J. &quotGlobalizing corporate governance: Convergence of form or function.&quot The American Journal of Comparative Law&nbsp (2001): 329-357.

Glasbeek, H. J. Wealth by Stealth: Corporate Crime, Corporate Law, and the Perversion of Democracy. Ann Arbor, MI: Between The Lines, 2002.

Grant, Gerry H. &quotThe evolution of corporate governance and its impact on modern corporate America.&quot Management Decision 41.9 (2003): 923-934.

Jickling, Mark. &quotThe Enron Collapse: An Overview of Financial Issues.&quot Congressional Research Service: RS21135: February 4, 2002 (2002): 1-5.

Kaysen, Carl. &quotThe social significance of the modern corporation.&quot The American Economic Review&nbsp (1957): 311-319.

Lasfer, Mohammed Alzahrani and Meziane. &quotDividend Policy and Stock Price Volatility.&quot Journal of Business (2008): 679-897.

Nace, Ted. Gangs of America: The Rise of Corporate Power and the Disabling of Democracy. San Francisco: Berrett-Koehler Publishers, 2005.

Niamh Moloney, Jennifer G. Hill, John C. Coffee, Jr. The Regulatory Aftermath of the Global Financial Crisis. New York: Cambridge University Press, 2012.

Shah, Anup. &quotThe Rise of Corporations.&quot 05 December 2002. Global Issues: Social, Political, Economic and Environmental Issues That Affect Us All. 9 November 2015 &lthttp://www.globalissues.org/article/234/the-rise-of-corporations&gt.

Williamson, Oliver E. &quotThe modern corporation: origins, evolution, attributes.&quot Journal of economic literature (1981): 1537-1568.

Professor`s name

Coursename

Acorporation can either be a sole proprietorship, partnership, LimitedLiability Company or a private company.Acorporationisalsoreferredtoasa companyoralimitedcompany.Inthe1870s,individualsorgroupofpeopleranmostbusinessesinAmerica.TherewasalotofrevolutioninAmericaaround the 19thcentury,fromthetimeofcivilwartothepresent,concerningthewaypeoplemanageandruntheirbusinesses.Thiswasinthe formofcorporations[CITATION Mar04 p 387-455 l 1033 ].

Corporationsbecame America’seconomickeyinstitutionsthatcontributedintherapiddevelopmentofthecountry.Theybroughtalotofchangesandbenefitstothepeopleofthecountryasawhole.Therearedifferentreasonsthatledtotheformationofcorporations,whichbroughtaboutseveraladvantages,disadvantages,andimpactonthedemocraticsocietyofUnitedStatesofAmerica.

The Emergence of Modern CorporationsEmergence

Thehistory of Modern Corporation dates back to 200 years. The Dutch EastIndia Company (VOC) is considered to be the first modern corporation.Its charter, VereenigdeOost-Indische Compagniedates back to 1602. However, the charter did not include all thelegal personality features of a corporation [CITATION Gil01 p 329-357 l 1033 ].Essentially, the legal personality status of a corporation makes ithave an autonomous life independent of its owners. Institutions arecrucial tofostering economic growth. EIC and VOC contributed significantly tothe growth of the modern corporations. The emergence can be splitinto two main time periods

  1. Smithian Growth and the Mercantilist Economy (1600-1800)

  2. Schumpeterian Growth and the Industrial Economy (1800 – 2000)

Inthe1870s,individualsoragroupofpeoplefinancedmanybusinessesassoleproprietorsorpartnerships.Therefore,prosperitywasonlyforthefew.Also,iftheindividualwasunabletopayadebt,itwastransferabletotheotherfamilymembersorrelatives.Toaddoninworsecases,itledtotheincarcerationofrelativesorfamilymembers,onbehalfoftheaccusedindividualwhofailedtopaythedebt.

Peoplefearedtoinvestinthisbusinessbecausetheshareswerenottransferableoutsidetothepublicthustherewerestrictrulesonceapersonjoined.However,inthelastyearsofthe19thcenturythereweremajortransformationsontheoperationsandstructuresofbusinessesinAmerica.Therewastheneedforbusinessesthatwereindependent,andthemembersormanagementwasnotliableforitsdebt.

Theperiod was also characterized by international agreements such as theNorth American free Trade Agreement. The agreement increased thecorporations’ power to the level of sovereign nations [CITATION Ted05 p 118 l 1033 ].

Reasonsfor Emergence of Corporations

ModernCorporations were introduced to solve the problem of having the samepeople owning and managing the businesses. Early businesses onlyemployedafewpeople,buttheownersthemselveswereinchargeofoverseeingalltheoperationsofthebusiness.However,theformationofModernCorporationledtobusinessmanagementdonebyqualifiedprofessional[CITATION Wil81 p 1537-1568 l 1033 ].

Theneed for honesty inadistantbranchcreated the necessity for Modern Corporations.However,asbigbusinesscontinuedtogrowtherewasa needfortheuseofbureaucratichierarchiessince thesuccessofthebusinessreliedonacentralizedcoordination.Tobeabletoachievethesebigbusinessesformedformaladministrativebusinessstructures.Therewastheestablishmentofdifferentmanageriallevels.Therewasalsothecreationofunderstandablyoutlinedauthorities.Therewasformaluseofrulestoassistinthegovernanceofthecorporationoperations.Thesehelpedinthecreationof“middleclass”levelforcorporation’swhite-collaremployees,thiswasdifferentfromthetraditionmiddle-classlevelthatinvolvedindependentprofessionals,farmers,andshopkeepers[CITATION Wil81 p 1537-1568 l 1033 ].

Mostoftheearlier businesstransactionsweredonewithinonelocalityforexampleatown,andfromasinglefactoryoroffice.Therefore,townresidentsweretheirmaincustomers.However,therewasthe needforgrowthofbusinessestootherlocalitieshencetheformationofnewcorporationbusinessingeographicalscaleandsize.Thismeantthattheirtransactionswerescatteredwidelyindifferentlocations.

Mostof theearlybusinessesspecializedinasinglekindofbusinessoperationsforexampleifsomeonewasamerchant,manufacturerorwholesalertheywouldonlyhandlethatparticularfieldorproductthattheyhave.However,withtheintroductionoftheModernCorporationbusinesseswereinvolvedinseveralkindsofbusinessoperations.Forexample,theoperationsofaUSAsteelcompanywasminingfromthegroundtheironore,thentakeittoitsmill,processittosteel,thentoanydesiredfinishedproduct,andthentransportthefinishedproductstowholesalers.

Advantages and Disadvantages of CorporationsAdvantages

Acorporation is reflected to be a legal person separate from itsfounders. In the case of Salomonv Salomon and Company Limited,the House of Lords argued that a corporation is a different beingfrom its owners or subscribers to the memorandum [CITATION Ber91 p 187 l 1033 ].

Oneoftheadvantagesofusingacorporationtoyourbusinessisthatitislimitedliability.Thatistheshareholdersorownersofthebusinessarenotlegallyresponsibleforthedebtsofacorporation.Ifthe corporation isincapableofpaying itscreditors,thecreditorshavenorighttodemandpaymentfromtheownersorshareholders.TheGlobal Financial Crisis in 2008-2009, for example, had severe effectson the liquidity position of most companies. The financial crisis ledto the liquidation of some ASX listed companies such as HolmanBrothers Limited. The owners of such companies wouldn’t be liablefor the debts and losses [ CITATION Nia12 p 274 l 1033 ].

Thecorporation’s properties belong to the company and not to theindividual shareholders. In the case of Macaurav Northern Assurance Co,an individual doesn’t have the right to insure the company propertyor make drawings from it.

Acorporation has the right to transfer shares freely unless restrictedby the company’s articles [CITATION Gra03 p 923-934 l 1033 ].Ashareholder can easily dispose the shares in a corporation at anytime depending on the market conditions. Acorporationhasperpetualexistence,inotherwords,alegalentitythatisseparatefromitsownersandshareholders.Therefore,inthe caseofdeathorchangesintheownershipofthecorporation,thisdoesnotaffectthecorporationasithasthelegalrighttocontinueasabusiness.

Itiseasierforacorporationtoraisecapitalcomparedtotheotherformsofbusinessthrough the issue of share capital.Corporations can easily access debt capital from the borrowinginstitutions since they have assets that can be used as loancollateral [CITATION RHC37 p 386-405 l 1033 ].However, over-reliance on debt capital can expose the corporations toliquidity problems.

Disadvantages

Thelimited liability characteristic exposes the shareholders and otherinvestors to financial risk associated with the loss of theirinvestment. In case a corporation is unable to pay its debts, theshareholders cannot be called upon to pay the debts because thecorporation is considered to be a separate legal person from itsowners. However, the investments made by the shareholders will belost if the corporation is liquidated.

Acorporation is considered to be an “invisible friend” capable ofowning property. The legal status of a corporation renders the ownersimmunity against any wrongdoings, both illegal and criminal acts.Corporations lead to the creation of “legally irresponsibleprofit-maximizers.” The owners have no concern on how thecorporation generates profits.

Theright to transfer shares freely can be abused by persons intending totake over the corporation. Theshareholders may threaten the corporation with a forced take over toa competitor corporation through transfer of shares to thecompetitor.

Agencytheory is a main disadvantage of corporations. Publiccompanies practice stewardship accounting. In stewardship accounting,the shareholders provide resources to an organization. The managementof the public company should invest in projects that are going tomaximize on shareholders’ wealth. The separation of ownership andmanagement may create conflict between the shareholders and themanagement. The management may undertake unprofitable investments.The management may also indulge in fraudulent practices such asaltering the financial statements to conceal errors and frauds.

EnronCorporation, for example, was the sixth largest energy company in theworld. However, the company collapsed as a result of fraudulentactivities by the top executives. The corporation’s earnings hadbeen overstated. The top executive disposed their investments inEnron before its downfall. Most of the top executives were jailedafter the investigations [CITATION Mar02 p 1-5 l 1033 ].

Thereisapossibilityofdoubletaxation.Thisisduetothecorporationrequirementtopaytaxontheprofitithasmadeduringthefinancialyear.MohammedAlzahrani and Meziane Lasfer (2008) analyzed the dividend payoutguidelines of the companies listed in 24 OECD member countries thatapplied different tax systems concerning dividends. MohammedAlzahrani and Meziane Lasfer (2008) and Lasfer (2008) found out thatcompanies located in countries that applied double taxation, commonlyreferred to as the Classical tax system, have a less dividend payoutthan the companies located in countries that try to shun moderatelydouble taxation [ CITATION Moh081 p 679-897 l 2057 ].

Impact of corporate form on the democratic society

Ademocratic society aims at ensuring equal rights, freedom of speechand tolerance views of the minorities. The emergence of corporationscan be engines of positive change or negative change in thedemocratic society. The effect can be on general populations throughadvertising in the mainstream media, on public policy and governmentand international institutions. Corporations have major influences onour lives. Out of the 100 largest economies, for example, 51 arecorporations and 49 are countries [ CITATION Anu02 l 1033 ].

Thepublic traded companies are everywhere. The corporations sponsorpolitical rallies, politicians, and political parties. As a legalperson, the corporations cannot act and think on their own. In caseof any wrongdoings, the corporation representatives can argue thatthe corporation cannot be held personally liable for any wrongdoing.Hence, they can breach a law.

Accordingto Martin Gilens and Benjamin Page, economic elites and organizedgroups representing business interests have a significant independentimpact in USA [CITATION Mar14 p 564-581 l 1033 ].Corporate capitalism grew in the 1800s as a result of claimingcorporations to be individuals. USA Court Ruling in 1886 increasedthe corporation powers. Under the US constitution, a corporation isconsidered to be a “natural person” and has the same rights andprotection like every other individual. As a result, the corporationsused their wealth to dominate the public thought and discourse.

Theemergence of corporations has led to the “corporate libertarianism”where the rights and freedoms of the corporations were above those ofindividuals. Consumptionof fast foods has the following effects cardiovascular diseases,liver diseases, asthma and liver disease. McDonald has been facing alot of resistance from parents claiming it to close down its onlinemarketing tool to kids. Despite the negative effects of fast foods,McDonald is still offering fast food despite huge outcry from thepublic on the health effects of fast food. The company also uses thecheap labor policy that has led to labor protests, industrialstrikes, and unfavorable legal rulings against the company. Suchpractices have a negative effect on the individuals [ CITATION Rui14 l 1033 ].

Itis estimated that at least four million people die yearly fromtobacco-related products. However, British American Tobacco is stillproducing tobacco products despite such enormous deaths. It isunfortunate that no person has been convicted for the heinous act.Johns-Manville and the Cape Company has continuously exposed millionsof people to poisonous asbestos. However, no-one has taken liabilityof the criminal offense even up to date. Such criminal acts put atrisk the democracy of the individuals. Corporations are beyond thelife of individuals. Despite the manufacturer of AH Robins going intobankruptcy, the company knowingly produced intrauterine conceptivethat resulted to miscarriages and infant deaths. However, no-one wascharged.

Corporationsare prone to evildoing to the democratic society. The cases ofMcDonald, AH Robins, and British American Tobacco explains some ofthe evils committed against the democratic society. Corporationspromote criminal behavior amongst the democratic society. Asdiscussed, the corporate owners will indulge in any activity at theexpense of human life so as to make profit. The corporation can beviewed as a source of evil. In most cases, the law provides forpenalizing the offenders without criminalizing them. The wealthowners of the corporations hide behind the corporate veil.

Thecorporate form has led to wealth-owners having a strong influence inthe state affairs regardless of their impacts on the ordinary citizen[CITATION HJG02 p 90 l 1033 ].Thecorporate form has had an impact on the cultural, physical andpolitical environments across the globe. Thecorporations have claimed the individuals` human right of freespeech.Before the 1886 ruling, corporations were not allowed to give moneyto either the politicians or political parties. The corporationscouldn’t influence elections.

However,after the ruling, corporations took control of the political partiesand financed politicians. Corporations have more rights than people.The increasing size and wealth of the corporations have a significantinfluence on the economic and political power denying the humanpersons the privilege they had before. In most cases, the ordinarycitizens normally enjoy the economic policies that are favored by thecorporations [CITATION Kay57 p 311-319 l 1033 ].

Works Cited

Berle, Adolf Augustus &amp Gardiner Gardiner Coit. The modern corporation and private property. Transaction publishers, 1991.

Blair, Margaret M. &quotThe Neglected Benefits of the Corporate Form: Entity Status and the Separation of Asset Ownership from Control, in Corporate Governance and Firm Organization.&quot Microfoundations and Structural Form 45 (2004): 387-455.

Chen, Ruixue. &quotEffects of McDonalds on Younger Chinese Generation’s Lives.&quot August 2014. University of Missouri. 13 November 2015 &lthttps://artifactsjournal.missouri.edu/2014/08/effects-of-mcdonalds-on-younger-chinese-generations-lives/&gt.

Coase, R. H. &quotThe Nature of the Firm.&quot Economica (1937): 386-405.

Gilens, Benjamin I.Page &amp Martin. &quotTesting Theories of American Politics: Elites, Interest Groups, and Average Citizens.&quot American Political Science Association Vol 12/ No.3 (2014): 564-581.

Gilson, Ronald J. &quotGlobalizing corporate governance: Convergence of form or function.&quot The American Journal of Comparative Law&nbsp (2001): 329-357.

Glasbeek, H. J. Wealth by Stealth: Corporate Crime, Corporate Law, and the Perversion of Democracy. Ann Arbor, MI: Between The Lines, 2002.

Grant, Gerry H. &quotThe evolution of corporate governance and its impact on modern corporate America.&quot Management Decision 41.9 (2003): 923-934.

Jickling, Mark. &quotThe Enron Collapse: An Overview of Financial Issues.&quot Congressional Research Service: RS21135: February 4, 2002 (2002): 1-5.

Kaysen, Carl. &quotThe social significance of the modern corporation.&quot The American Economic Review&nbsp (1957): 311-319.

Lasfer, Mohammed Alzahrani and Meziane. &quotDividend Policy and Stock Price Volatility.&quot Journal of Business (2008): 679-897.

Nace, Ted. Gangs of America: The Rise of Corporate Power and the Disabling of Democracy. San Francisco: Berrett-Koehler Publishers, 2005.

Niamh Moloney, Jennifer G. Hill, John C. Coffee, Jr. The Regulatory Aftermath of the Global Financial Crisis. New York: Cambridge University Press, 2012.

Shah, Anup. &quotThe Rise of Corporations.&quot 05 December 2002. Global Issues: Social, Political, Economic and Environmental Issues That Affect Us All. 9 November 2015 &lthttp://www.globalissues.org/article/234/the-rise-of-corporations&gt.

Williamson, Oliver E. &quotThe modern corporation: origins, evolution, attributes.&quot Journal of economic literature (1981): 1537-1568.