Corporations

It's not hard to form a corporation. You fill out a form, pay a fee and you're in business. Corporations are either sole proprietorships or partnerships: if a corporation as a sole proprietor, that means it's a one-owner company. Partnerships mean that two or more people are involved financially in the company. The big advantages to forming a corporation instead of just having an informal setup may include tax breaks, government grants in hiring workers and the fact that if the company goes belly-up, the personal financial holdings of the company members are not obliterated by company debts or liabilities.

Corporations are either privately held or publicly traded. Privately held corporations are funded by a group of investors (or one person) who hold shares totaling a certain percentage of the company. Most new companies start as privately held ones because smart investors never put their money into an unproven company. But once a company is making some profit, or comes up with a promising-looking product, it may "go public" by offering shares of stock to be traded on one or more of the stock exchanges. Income from the stocks purchased by investors may be used to run the company, to expand, or to create and market new products. As the business grows, the stocks should increase their value. If a business needs to grow, going public is one way to do it. When a company first places its stock up for public sale, it's called an IPO, or Initial Public Offering.

The number of shares of stock issued by a company depends on how the corporation officers decide to divide ownership of the organization. If you buy one share of stock in a company that only issued 100 shares total, you will own 1% of that company. Some companies only issue a few thousand shares, and others may sell more than a billion shares. The Securities and Exchange Commission (SEC) has to approve every company that sells shares on the open stock market.

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