Growth of 19th Century Corporations:

 

Single proprietorships and partnerships were no longer able to meet the needs of large scale business:

     Could not raise large sums of money

     Personal financial responsibility of owners

           in claims against the business

     Disruption of business if owner died

 

To eliminate these weaknesses, owners created CORPORATIONS:

     created by the granting of a state charter

     allows a group of individuals to act as an

           “artificial legal person”

     can sue and be sued; hire and fire; buy

           and sell, manufacture and trade

 

What are the advantages of corporations?

     Can raise large sums of money by selling

           stocks and bonds to the public

    

           Stockholders own “shares” of the

           company and share in the profits

           called “dividends”

           Bondholders lend money to the

           corporation and then receive interest

 

     Limited Liability: personal assets of the

           owners or shareholders cannot be

           seized in cases against the

           corporation

    

           Only the initial investment of

           shareholders is lost

 

     Shares are transferred through sales

           when people wish to get out of the

           business

 

     Perpetual life: the corporation is not

           affected by the death of its “owners”,

           the shares are transferred to the

           holder’s heirs

 

What are the disadvantages?

 

     As a state created entity, all business and

           financial records are made public

           through the filing of periodic reports

     Double taxation: stockholders pay taxes

           on their dividends AND the

           corporation has to pay taxes on its

           profits

 

     Corporations, while usually small, allowed

           the growth of business giants in the

           1800’s

    

     Usually there is little contact between the     

           corporation and its workers and

           customers

 

After the Civil War, many corporations were combined to create MONOPOLIES:

 

A monopoly is defined as the elimination of all or most competition

 

This allowed the corporation to determine any prices for its products at the expense of the consumer

 

How were these monopolies created?

 

In the 19th Century: (All are illegal today)

    

     POOLS: usually a secret agreement

           among competing companies to fix

           prices and output or to divide sales

           territory

    

     TRUSTS: Stockholders of competiting

           companies turned their stock over to a

           Board of Trustees and received trust

           certificates in exchange

 

           The board then gained control of all

           companies and managed the

           smaller companies and eliminated

           competition

 

Today, any powerful business combination is still referred to as a trust, even though trusts are illegal

 

In the 20th Century:

    

    

 

HOLDING COMPANY: which buys enough

     voting stock in different companies

     (subsidiaries) to control those companies

     (some complex forms of this are illegal)

 

INTERLOCKING DIRECTORATE:

     arrangement in which men serve on the

     boards of directors in several companies

     (these are legal as long as they do not

     lessen competition)

 

MERGER: consolidation of two companies

     under one corporation (is legal as long as

     it doesn’t unreasonably restrain trade)

    

large corporations have used the merger to diversify the fields they are in and create CONGLOMERATES through the merger