Corporations

Definition

Corporations are legal entities that are separate from their owners, created to conduct business and provide goods or services while limiting personal liability. This structure allows corporations to raise capital more easily through the sale of stock and facilitates large-scale operations, making them a critical player in the economy. They can operate across borders, engaging in international trade and investments, thus having a significant impact on the global financial landscape.

5 Must Know Facts For Your Next Test

1. Corporations can issue stocks to raise funds, which helps them grow and expand their operations more rapidly compared to other business structures.
2. They are governed by a board of directors, elected by shareholders, who oversee management and major decisions impacting the corporation's future.
3. Corporate profits can be subject to double taxation: first at the corporate level and then again when distributed as dividends to shareholders.
4. Corporations can have perpetual existence, meaning they continue to exist independently of ownership changes, unlike sole proprietorships or partnerships.
5. The rise of globalization has allowed corporations to expand their reach, affecting foreign exchange rates as they engage in international transactions.

Review Questions

• How do corporations utilize limited liability to attract investment and influence economic growth?
  • Corporations use limited liability to attract investors by ensuring that their personal assets are protected from business debts. This reduces the financial risk for shareholders, making it more appealing to invest in corporations. As a result, corporations can raise significant capital through stock offerings, which fuels economic growth by enabling businesses to expand operations, innovate, and create jobs.
• In what ways do multinational corporations impact foreign exchange markets when conducting international business?
  • Multinational corporations significantly impact foreign exchange markets through their international operations. When they conduct business across borders, they must convert currencies for transactions, leading to increased demand for specific currencies. This activity can influence exchange rates, as large currency trades by corporations can lead to fluctuations based on the volume and timing of their transactions. Furthermore, MNCs often hedge against currency risk, which adds additional layers of complexity to the foreign exchange market dynamics.
• Evaluate the implications of corporate governance on the effectiveness of a corporation's strategic decisions and overall performance in global markets.
  • Effective corporate governance is crucial for strategic decision-making and overall performance in global markets. A well-structured board of directors can provide oversight, ensure accountability, and align management's actions with shareholder interests. Good governance practices help mitigate risks related to mismanagement or unethical behavior, enhancing a corporation's reputation and stability in the international arena. Consequently, corporations with strong governance are better positioned to adapt to changing market conditions, respond to global competition, and achieve sustainable growth.

Related terms

Limited Liability: A legal structure that protects an owner's personal assets from being used to satisfy business debts or liabilities, reducing financial risk for investors.

Shareholders:

Individuals or entities that own shares in a corporation, entitled to a portion of the company's profits and voting rights in corporate decisions.

Multinational Corporation (MNC): A corporation that operates in multiple countries, managing production or delivering services in various locations around the world.