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 advantage of forming a distinct corporation rather than simply establishing another department of the business, is not always clear to the outsider, but may frequently be due to personal relations. A first-class real estate man, for example, may not desire to come to a corporation as a paid employee, but would be willing to assume the management of a distinct corporation under conditions that would enable him to secure adequate profit. Again, it is frequently desired to give the manager of a plant or of a branch office an opportunity to acquire a personal stock interest in the operations directly under his control, and this can be most easily done through the formation of a separate corporation. Recently, a case was brought to the writer's attention of a furniture company which has gradually extended its business until it now handles various lines not strictly connected with the furniture business, including papers for wrapping and packing furniture. This company found that difficulty was being experienced by their sales force in calling upon people interested in the paper business because of the impression that the salesman had only furniture for sale. The difficulty was easily overcome by forming a separate company to handle the sale of paper, with a separate name, stationery, and sales manager, but otherwise conducted as a part of the parent concern.
It may be thought strange that a corporation holding a charter and grant of powers from the state, could be organized so lightly and for so minor a purpose, yet the illustration is not unrepresentative. It has become so easy and common a thing to organize a corporation for some specific purpose, that it is frequently done with very little thought and often when little or nothing is gained. Possibly this tendency is going a little too far, and might properly be curbed by closer supervision on the part of the state and by somewhat higher organization and franchise taxes. On the other hand, we should not overlook the usefulness of the arrangement in many instances, and should not be misled by a cry against holding companies into condemning or preventing practices that on the whole make for business efficiency.