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Large Corporations in the USA
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Although there are many small and medium-size corporations, bigger business units are needed to perform certain services in the vast economy. Large corporations can supply goods and services to a greater number of people across a wider geographic area than small businesses. They serve consumers across the nation and across the world. Corporate products tend to cost less per unit sold. Moreover, consumers benefit from the availability of corporate «brand names», which they recognize as guaranteeing a certain level of quality wherever purchased.
Large corporations also have the financial strength to research, develop and produce new goods. Their scientific know-how, innovation and technical capability are critical to maintaining the nation's competitiveness and productivity.
In the United States, a corporation is a specific legal form of organization of persons and resources chartered by one of the 50 states for the purpose of conducting business. When people and resources are brought together, the result in the eyes of the law - is a person (Indeed, the Latin word «corpus» means «body» or «person»). A US corporation, distinct from any individual human being, may own property, sue or be sued in the court and make contracts. For this reason, a corporation is an ideal vehicle for the conduct of business by many smaller enterprises as well as larger ones.
Advantages and Disadvantages of Corporations
The corporate form of business is more flexible instrument for large-scale economic activity than the sole proprietorship or partnership.
First, because the corporation itself has legal standing, it safeguards its owners, relieving them of individual legal responsibility when they act as agents of the business.
Second, the owners of shares of stock have limited liability; they are not responsible for corporate debts. If a share-holder paid $ 100 for 10 shares of stock and the corporation goes bankrupt, he or she can only lose $ 100 invested.
Third, corporate stock is transferable. Thus, the corporation is not damaged by the death or disinterest of a particular person. An owner of stock can sell his or her holdings at any time or pass the stock along to heirs. Yet, the corporate business organization has drawbacks as well as benefits.
One disadvantage relates to the taxation. As a separate legal entity, the corporate may pay taxes. Unlike the treatment of interest on bonds, dividends paid to shareholders are not a tax-deductible business expense for the corporation. When the corporation passes along profits to individuals in the form of dividends, the individuals are taxed again on these dividends. This is known as «double taxation».
Another cost results from the fact that ownership becomes separated from management. While this makes management easier, some managers are tempted to act more in their own interests than of the stockholders.
Money
Money is the heart of business. Money is needed to pay wages, to acquire materials to make up into manufactured goods and to reward those who attempt to anticipate the needs of society and stand to lose if they fail to do so. Money is lubricant which allows the diverse elements in the economic system to interact effectively. If a business runs short of money in the private sector it will be wound up (if a company) or closed down (if the proprietor is bankrupted). People will lose their jobs and the flow of goods and/or services it has been providing will dry up. Money is the life blood of business and executives of all types will find much of their time and energy devoted to coping with problems of a financial nature. Finance becomes critical when a business is being first set up; when expansion is planned or when a shortage of working capital is developed.
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Without money business would be impossible. It is needed to pay wages, buy raw materials and to reward successful entrepreneurs. If there is a shortage of money, the business will collapse. There will be no production, no jobs. That is why the executors spend so much time dealing with financial problems.
Corporate Finance
Corporations need financing for the purchase of assets and the payment of expenses. The corporations can issue shares in exchange for money or property. Sometimes it is called as equity funding. The holders of the shares form the ownership of the company. Each share is represented by a stock certificate, which is negotiable. It means that one can buy and sell it. The value of a share is determined by the net assets divided by the total number of shares outstanding. The value of the share depends on the success of the company. The greater the success, the more value the shares have.
A corporation can also get capital by borrowing. It is called debt funding. If a corporation borrows money, they give notes or bonds. They are also negotiable. But the interest has to be paid out whether business is profitable or not.
What Special Problems Face Small Business
Small firms (with, say, less than 500 workers) are often faced with the problems of limited capital. This has a number of side-effects. It means first that they are unable to benefit from economies of scale. Bank managers will be less inclined to lend those funds and will charge them higher rates of interest when they do.
People will be prepared to buy shares in well-known companies. They will not want to buy securities of any sort from small unknown companies. Whereas large firms can threaten to withdraw their business, if debts owing to them are not settled on time, they tend to be regrettable slow on paying their own bills.
An engineer may set up a firm using his technical skills as the basis of the business. As the business grows, his defects as a marketing manager, accountant and personnel manager will begin to appear. He cannot be an expert in all sections of the business, nor can he afford to consult his larger competitors.
The small firm is also unlikely to be able to afford sophisticated^ technological equipment such as a mainframe computers or visual display, however useful they might be. Advertising cost spread out over a large number of units may be insignificant, but given a smaller level of output they prove an intolerable burden. Inevitably, television advertising tends to be a resource available only to the larger concerns.
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Starting-up Financing
The young businessman must find sources of money that will last until revenue begins to exceed cash outflows. He must be creative in finding start-up funding. New small businesses can start with the businessman's own assets. On top of that, start-up financing may come from friends and relatives. The larger businesses can obtain funds from venture capital investors.
One of the personal assets the businessman can use to raise funds for the business is his home. The value of the home that the owner has paid for is called the owner's equity in the home. By pledging this equity, the homeowner can obtain a second mortgage or a home equity loan.
A businessman can find another source of start-up financing by a life insurance policy. Many policies build up cash surrender value - the money that the policy- holder can borrow at a low interest rate.
Those who need more funds can obtain a variable rate installment loan. It is a personal loan with an interest rate tied to the prime rate or some other index when the index changes the rate changes in the same direction.
Some good sources of start-up funds are family members and friends. Many people can afford to lend at a low interest rate. The lender can share ownership of the business or can become a partner or shareholder in a corporation.
In some cases new companies can obtain cash from venture capital firms. These financial intermediaries specialize in funding ventures with good promise and invest in businesses which generate high profits within five years. Initially venture capital firms invested in high-tech industries, but now other branches enjoy this kind of financial aid, especially those working in the health-care field. The venture capital firms provide seed money to start a new company funds to help the venture grow and gain the market and money to buy out a business.
Small Business in the USA
Not all people who start businesses dream of huge multimillion-dollar corporations with international sales. Many just want to sell things - fruits and vegetables, home appliances, clothes or computers so that they can be «their own bosses». These small businesses are an important part of the economy. Many of them provide needed goods and services in city neighborhood, in small towns or in rural areas, where large companies might not provide adequate service.
Every year hundreds of thousands of Americans start their own businesses. A government agency, the Small Business Administration helps with information, advice, and, sometimes, loans and grants. Many large companies with many stores started as one-store operations.
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