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CH 3] Business 101 3-11

state of incorporation, then it will register as a foreign corporation in those other
states. When a business is incorporated in one country but is operating in another, then foreign corporation
the company is an alien corporation in the nation in which it is doing business. Firm doing business in a
McDonald’s, the well-known fast food restaurant retailer and franchise marketer, state other than the one in
operates as a domestic, foreign, and alien corporation. McDonald’s is incorporated in which it is incorporated.

Illinois (domestic corporation). Though this business began in San Bernardino, CA, its alien corporation
headquarters are in Oak Brook, Illinois. It is the largest chain of hamburger fast food Firm organized in one
restaurants and is located in more than 120 countries in the world, serves more than 70 country but operating in
million customers on daily basis and has more than 40,000 outlets. When operating in another.
the other 49 states and territories it is a foreign corporation. The firm also operates in
Canada where it is an alien corporation.
Incorporating the Business
In most states the state agency and office that administers corporate oversight is
usually the Secretary of State. Corporate charters, or Articles of incorporation are the 3
forms that must be filed with the appropriate state agency.
Corporate charters usually include similar information: the corporate name,
address, corporate purpose, number, class, and par value of authorized capital stock,
registered office and agent, name of the incorporator and address, and board of
director information.

Stockholders
Stockholders are the owners of a corporation. Each share that they hold represents stockholders
that portion of ownership in the corporation. A family farm that is incorporated will People who acquire the
have relatively few stockholders—and is probably structured as an S corporation. shares of, and therefore
Since some corporations owned by few individuals and are not publicly traded, they own, a corporation.

are known as a close corporation— the stockholders also control and manage the close corporation
corporation's activities. In a larger corporation, such as Disney, the ownership is Corporation owned by
diversified and publicly traded. relatively few stockholders
Because of the enormity of stockholders in Tyson Foods (NYSE: TSN), exceeding who control and manage its
activities.
hundreds of thousands, individual owners exert little control or influence on this
company. If they decide to sell their shares, there is a ready market for it in the stock
market.
Annual stockholders’ meetings are held and management presents reports on the
corporation’s activity, questions may be asked by stockholders, and the board of
directors are elected. If there are any issues that the stockholders need to vote on, they preferred stock
generally occur at the annual meeting. Stock that has the first claim
A corporations stock is generally classified as common or preferred. Common and to the corporation's assets
preferred stock define the pay order and represent rights to the companies assets if, after all debts have been
paid.
say, the company goes broke. Preferred stock owners hold first claim to the
corporation's assets after all indebtedness is paid off, and they usually do not have common stock
voting rights at the stockholders' meetings. Common stock owners hold what is Stock whose owners have
termed a “residual claim” to the companies assets. That is after the debts are paid off, only a residual claim to the
and the preferred stock holders are paid, then the balance of the assets are paid to the firm's assets but who have
voting rights in the
common stockholders. Because the common stockholders actually have the greatest corporation.
risk, they have voting rights in the company, such as to elect the board of directors.
When a vote is taken, each share of common stock is worth one vote. For example, a
person with 350 shares has 350 votes. When stockholders cannot attend the annual
meetings, quite often they will authorize someone else to vote their shares on their proxy
Authorization by
behalf. This is called a proxy authorization to vote the shares to someone who will stockholders for someone
attend. else to vote their shares.
One will easily recognize that comparing the voting power of a stock holder who
has 350,000 shares possesses more voting clout than the share holder with 350 shares.
Therefore, small stockholders generally have little influence on corporate
management.

Board of Directors board of directors
The board of directors are the governing authority for the corporation and they Governing body of a
are elected by the stockholders. In turn, the board of directors selects its own officers, corporation are elected by
the chairman, vice-chairman, and a secretary. Generally, three directors are required as the stockholders.

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