Question

Discuss either an advantage or disadvantage of the corporate form of business using real-world examples where possible.

Answer 1

Following is a list of advantages and disadvantages of the corporate form of business :-

(a) Ownership and management are separated : Disadvantage

(b) Entity has continuous life : advantage

(c) Transfer of ownership is easy : advantage

(d) Stockholders' liability is limited : Advantage

(e) Exposure to double taxation is evident : Disadvantage

(f) Entity can raise more money than a partnership or sole proprietorship : Advantage

(g) Government regulation is expensive : Disadvantage

for example, the telegraph giant Western Union owned just 20% of the stock of New York Telephone (a large AT&T subsidiary), yet held five of thirteen directorships.4 But most outrageous, in Mackay’s opinion, was what he termed Fish’s “new theory” that a large owner was somehow disqualified from management. By that logic, Mackay scoffed, “it would be better if the directors own no stock whatsoever, which, of course, is contrary to the theory on which corporations . . . are organized.”5 On its face, then, this seems a clear case of an owner losing control to managers. In The Modern Corporation and Private Property, Adolf Berle and Gardiner Means would use AT&T as a prime example of what they saw as a dangerous new trend, the replacement of ownership-based capitalism with giant corporations controlled by a small group of propertyless managers. Indeed, AT&T became Berle and Means’ favorite example. In the 1930s, the Federal Communications Commission (FCC) would interpret the Mackay incident in a like manner: an example of the separation of ownership and management and subsequent loss of control by owners.