Question

It is a law ques. Pls answer all the three ques asked

1. If the controlling majority of a corporation's stockholders vote to re-invest profits in a way that benefits employees or society, rather than disbursing that money to the shareholders, should that action be allowed? If the majority stockholders are not benefiting in an unfair manner by this decision, why should the minority have the ability to overturn the majority vote? 2. Should corporate income be double-taxed? Why or why not? 3.Should corporations enjoy the same freedom of speech rights that natural persons enjoy? Why or why not?

Answer 1

Shareholders of an organization become a partial owner, but they have a number of limitations and hence we could call it as a very limited type of ownership.

1. The decision to either re-invest the profits or to issue dividends lies with the Board of Directors of the company. Though the shareholders have the right to vote, they cannot exercise direct pressure on the company on this. But they can play a significant role in choosing their board of directors through their votes in the annual general meeting. Though majority of the shareholders are not benefitted by the decision of the board, many corporations decide to forego dividends and go with the reinvestment decision to maximise long term revenues.

To summarise the answer for the first query, The Board of Directors have the sole discretion to reinvest profits into business as a strategic decision for the long run and well being of the organization and its shareholders.

2. Generally double taxation occurs only in the case of dividend pay outs. An organization when it earns income is subject to pay its equivalent Income tax accordingly to our company and tax laws. And in turn when these profits are distributed to the shareholders in the form of dividends, shareholders are subject to pay their individual income tax for the same income for which already taxes were paid by the organization. Hence, this scenario calls for the concept of "double taxation"

An easier way to avoid the double taxation is to re-invest the profits back into business and hence avoid the tax paid for the dividend income.

3. Corporations are called as "Legal persons" and holds similar rights and obligations compared to the natural persons. As far as US laws are considered, Legal persons have many of the same rights and responsibilities as natural persons do. So every corporation has its own PRO(Public Relations Officer) or a spokesperson who will be the face/voice of the firm through which the organization can exercise their freedom of speech.