This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
The underlying advantages of the corporate form for most business concerns, have already been indicated in pointing out the disadvantages of the individual proprietorship and partnership. They may be listed as follows:
1. The corporate form makes it possible to distribute ownership among any number of persons and thereby to raise very large amounts of capital.
2. The relationship between the owner of a corporate security and the business itself being purely impersonal, the securities which represent ownership may be freely transferred.
These two points make a corporation attractive to investors.
3. The liability of owners of corporate securities is limited to their investment - or in certain exceptional cases to a larger amount bearing a fixed proportion to their investment.
4. The fact that the ownership and management are separated makes it possible to procure a high grade of specialized talent for managerial positions, whereas in a partnership form the partners themselves usually fill these positions; in many lines of business, for instance, railroads and public utilities, this is a. striking and important advantage.
5. The life of the corporation is not dependent upon the lives and activities of individuals; the duration of-the business, therefore, is not so immediately affected by the misfortunes of individuals.
One or two examples will indicate how these advantages may be utilized in different fields of operation. Some two years ago a real estate operator was able to secure control of a tract of land of about 600 acres, situated on the outskirts of a small city in the Middle West, which proved to have on it some valuable beds of gravel and clay. A portion of the property also was suitable for cutting up into small residence lots. The operator paid about $300,000 for the property. He estimated that with proper management it should have a value of over $600,000, yet he was himself unable to handle it and had found great difficulty in securing a buyer. Under these conditions he was advised to form a corporation, issue bonds and capital stock which could be sold not only in the near-by city, but at various other points, and thus secure for the corporation the funds with which to go ahead with the development of the property. The plan was finally adopted after considerable delay, and at this writing is in process of being successfully worked out. In no other way than through the organization of a corporation would it have been practicable to finance this undertaking.