THE MODERN CORPORATION

The modern corporation, conceived largely to meet the needs of large-scale business organization and to avoid the drawbacks of the other arrangements, has become the dominant form of American business enterprise. Although there are
only about 1 million business corporations, they do the bulk of the nation’s business, emplOy over 60 per cent of the workers, account for about twothirds of the nation’s privately produced income, and pay out over 50 per cent of the total national income. They do virtually all the business in public utilities, manufacturing, transportation, and finance; around half in trade and construction; but less than a quarter in services and agriculture.

The biggest modern corporations are truly Goliaths. In 1967, for example, the assets of the American Telephone and Telegraph Company (the world’s largest business) exceeded $35 billion. Those of Standard Oil of New Jersey and of General Motors were $13 billion. G.M.’s 1967 sales of $20 billion were larger than the entire gross national product of most of the world’s nations. In all, in 1967 there were 80 nonfinancial corporations with sales over a billion dollars.

Many financial corporations (banks and insurance companies) are as large, though most of their assets consist mainly of investments in corporate and government securities and of direct loans to businesses and individuals. In 1967, the total assets of the Prudential Life Insurance Company, the largest insurance company, approached $25 billion. Those of the Bank of America and the Chase Manhattan Bank, the two biggest banks, approached $20 billion.

Modern finance and industry are heavily concentrated in the hands of large firms, as we shall see in Chapter 27. Nevertheless, there are still many more small firms than large ones, and big business has been only gradually increasing its share of the total market in manufacturing over recent decades. And if we include government and other non-profit service industries (e.g., health and education), the share of the total national income produced by private corporations has declined slightly since hitting a peak of 55 per cent in the mid-1950’s.

What Are Corporations?

A corporation is an organization that exists as a “legal person” apart from the individuals who own and control it. A corporation may carry on business in its own name, enter into contracts, sue and be sued, own property, borrow and lend money. In general, it may as a business unit do all the things that any individual person may legally do in business.

For a long time, corporation charters speci fled the purpose of the corporation rather closely. Today, however, the corporation charters granted by most states are broad grants of power with only vague statements of corporate purposes that exercise little restraint over what corporations do or where they operate.

The main advantages of the corporate form of organization center around its financial arrangements. Briefly, these advantages are the following:

1. Stockholders who invest money in corporations have no liability for the debts of the corporation; at worst, they can lose their original investment. Thus, corporations can obtain funds by selling “stock” and “bonds” to many investors who merely want to earn a return on their investments without further financial involvement. These advantages are spelled out below.

2. In a corporation, management is delegated to a board of directors elected by the stockholders. The directors in turn supervise the salaried officials who actually run the business. Thus, the individual stockholder need not concern himself with the details of managing the concern unless he wishes to—quite another story from the continuous attention required in a single proprietorship or partnership. Freedom to delegate power and responsibility to expert “managers” is essential to the operation of today’s mammoth business enterprises.

3. Corporate securities are readily transferable. No matter how many individual stockholders die or lose interest in the corporation, the business can go on unaffected.