Chapter 6: Problem 11

Corporations are controlled by the (LOl) c) common stockholders

Short Answer

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In summary, corporations are controlled by the common stockholders, who hold the voting rights and participate in the company's decision-making process. They elect the board of directors, who manage the company's affairs and make crucial decisions. Their control is proportional to the number of shares they own, meaning that majority shareholders have significant influence over the corporation's decisions and direction.

Step by step solution

Introduction to Corporations

A corporation is a legal entity separate from its owners. It can sue and be sued, enter into contracts, and own property. The ownership of a corporation is divided into shares, which represent a portion of the total ownership. Each share gives the owner, called a shareholder or stockholder, certain rights and powers within the corporation.

Different types of stock

There are different types of stock that a corporation may issue, like common stock and preferred stock. Preferred stock usually gives holders some priority in receiving dividends and claims to the company's assets in the event of liquidation, but they typically have limited or no voting rights. Common stock, on the other hand, gives the holder the right to vote on company matters and elect the board of directors.

Common stockholders

As mentioned earlier, common stockholders hold common stock which gives them voting rights and allows them to participate in the company’s decision-making. They elect the board of directors, who are responsible for managing the company's affairs and making crucial decisions, such as issuing dividends, approving mergers and acquisitions, and appointing executives.

Control of corporations

Since common stockholders have the right to vote on important matters and elect the board of directors, they effectively control the corporation. The more shares a common stockholder owns, the more voting power they have. Therefore, a majority shareholder, someone who owns more than 50% of the outstanding common stock, can essentially control the company's decisions and direction.

Summary

In conclusion, common stockholders control the corporations by having the power to vote on company matters, elect the board of directors, and thereby guide the decisions and direction of the company. The control is proportional to the number of shares owned, and thus, majority shareholders have significant influence over the corporation.