Business Glossary

corporation owning enough voting stock in another company to control its policies and management. Advantages of holding companies include: (1) the ability to control sizable operations with fractional ownership; (2) the isolation and diversification of risks through subsidiaries; and (3) the fact that approval of stock purchases by the stockholders of the acquired company is not required. Disadvantages of holding companies include: (1) partial multiple taxation when less than 80% of a subsidiary is owned; (2) the ease of enforced dissolution by the U.S. Department of Justice; and (3) the risks of negative leverage effects in excessive pyramiding.

business organized as a separate legal entity with ownership evidenced by shares of stock. The corporation is formed by filing thearticles of incorporationwith the state authority, who returns it with a certificate of incorporation; the two documents together become the corporate charter. Each founding stockholder receives from the company a specified number of shares of capital stock. A stockholder may sell owned shares to other investors. The corporation is a legal entityseparate from its owners. Advantages of a corporation are the ability to obtain large amounts of financing through a public issuance, ease of transferring shares, limited liability of owners, unlimited life, and professional management.

assemblage of individuals formed to start and operate a business organization. A joint stock company generally shares the same characteristics as a corporation, but it does not provide limited liability, and in many states it lacks formal and official authorization. Once popular because of the ease of formation under the common law, joint stock companies are not seen as much today because it has become easier to form limited liability corporations under state authorization.