Importance of Corporations Essay – Introduction
A corporation is known as a company or a group of people authorized to act as an artificial person having a separate legal existence. Previously, such an entity used to be established by a charter. Nowadays, most of the statutes allow the setting up of new corporations through registration.
A company form of an organization is a going concern and is having its own official seal for authenticating documents as a substitute for its signature. In India, corporations are governed by the Indian Companies Act, 2013. The capital of a corporation is divided into small units called shares. The members of the company are referred to as shareholders as they invest their money by purchasing the shares of the company. The Directors or Management are the hands and brains of the company who are elected by the shareholders of the same. There is a complete separation of ownership (i.e., Shareholders) from the management ( i.e., Directors) in a company. A company, on the manner of formation, can be categorized in India on the basis of its constitution as a Public Limited Company, a Private Limited Company, or a One Person Company. It can also be divided on the basis of its formation as a Company limited by shares, a Company limited by guarantee, or a Company with unlimited liability. The Companies Act of 2013 is also having provisions for the companies titled Small companies, Dormant companies, and Not-for-profit companies.
The corporate form of organization has been successful in almost all countries of the globe. This form of business setup is most suitable where a large number of financial resources are required and the operations have to be carried out on a large scale as well. The number of corporations has shown phenomenal growth in the 20th century and is also growing at a rapid pace in the 21st century as well.
What is the Importance of Corporations?
Let us have a look at the importance of a company form of an organization as listed below:-
Accumulation of Large Resources:
A company can raise a large amount of capital because it has a large number of shareholders. It can raise financial resources through debentures, public deposits, loans from banks, financial institutions, etc. without much difficulty.
Limited liability of members:
In a corporation, the liability of the members is limited to the extent of the face value of shares held by them. Therefore, it attracts investment from a large number of shareholders. Due to limited liability status, a company can take a large amount of risk. The members of a company enjoy the benefit of limited liability. They are only liable to pay up to the face value of the shares held by them and their personal assets cannot be sold to pay the dues of the creditors of the company.
A company is having a perpetual existence and is not affected by the death, insolvency, etc. of its members. The life of a company is not dependent on the life of its members.
A company’s nature of activities is very complex and its volume of business is large as well. A corporate form of an organization possesses enough financial resources to hire professional managers to look after its business with effectiveness.
Economies of large-scale operations:
A corporation possesses a huge amount of financial resources so it can undertake operations on a large scale. This results in reducing the cost of operating a business to a very low level.
Transferability of Shares:
The shares of a public limited company are freely transferable. A person can buy shares when he/she is having money to invest and can convert such shares into cash easily when he/she requires money.
The management of a company is democratic in nature. It is managed by the elected representatives of its shareholders, which are known as ‘directors’ and their group is referred to as ‘Board Of Directors’.
A company accumulates scattered savings of the society. These savings are channelized in the production of goods and for rendering services. It also provides a financial institution with avenues to invest their money. It can carry out production on a large scale thereby reducing the cost per final output. It creates employment opportunities in society and provides the society with enough quantity of qualitative goods.
Conclusion on Importance of Corporation
A corporation or a company form of organization is the most convenient form of business set up for medium and large-scale operations. Although in India, a company has to adhere to numerous provisions of the Indian Companies Act, 2013 it is the best form of a business set up to procure a higher amount of financial resources than any other business entity.