Business is growing, there are more and more large companies, but it is becoming more and more difficult for a small entrepreneur to survive. What they are - corporations, what they are, good or bad - to unite, we will consider in this article.
Corporation: definition and essence
In today's market conditions, you understand more and more clearly that it is extremely difficult for small enterprises to stay afloat among business sharks, since external factors easily affect the activities of an entrepreneur, but he, in turn, does not turn the environment in the right direction maybe. Therefore, more and more business entities are uniting and strengthening.
The meaning of the word "corporation" came to us at the end of the 19th century with the growth of manufactory production. It is clear that the concept of production activity and business as a whole has changed since then.
What is a corporation today? This is the union of a group of elements (in our case, entrepreneurs) who achieve common goals through synergistic efforts. It is important to understand that the owner does not take an active part in the activities of such business entities,therefore, staff are hired separately as managers.
Today, corporate governance is most developed in the capitalist countries: Japan, USA and Canada.
What are they like?
According to the current legislation of different countries, in one state or another, the permitted forms of corporation differ, therefore it is more expedient to consider their varieties in the generally accepted world economic theory. So, the most common forms are:
- Limited Liability Company (LLC). As a rule, authorized funds in an enterprise of this type are formed at the expense of the founders' own resources, so all the risks fall on them (the currently popular mortgage corporation is one of these).
- Closed Joint Stock Company (CJSC). Shareholders act as owners, and they distribute the profits between themselves and employees.
- Open Joint Stock Company (OJSC). Securities of an enterprise of this type are issued through an open subscription, so anyone can buy them, including the government, which gives rise to state corporations.
- Cartel. Occurs when business entities involved in the same industry are combined.
- Holding. A corporation consisting of several companies, headed by a separate branch, which solves key issues of activity on its own behalf.
- Pool. A group of enterprises that differs in the distribution of profits (equally).
Relationshipswithin corporations
As a rule, if economic entities unite, they become dependent on each other. Although sometimes it happens that each company performs its main activities separately, only periodically transferring dividends to shareholders (an example of this is a mortgage corporation). But, nevertheless, there is an algorithm for the relationship between the owner and the subject of economic activity:
- once-separate entity is taken over by head representative;
- financial management goes corporate;
- former enterprise being restructured;
- a consortium is formed and branches are formed.
Corporate management system
As a rule, information about the management of the united enterprises, as well as the bodies carrying out this process, is indicated in the statutory documents of the newly formed business entity.
If we are talking about CJSC and OJSC, then such organizations are managed by hired executives, while key issues are decided by the meeting of shareholders (state corporations also have representatives of the executive sector of power in the head office).
Cartels, syndicates, holdings, pools and other forms of association inherent in capitalist society are structured as follows:
- Board of Directors (carries out strategic planning);
- executive director (gives orders, shares responsibility);
- other staff(usually has a vertical hierarchy).
Corporate advantage
What is a corporation? Representatives of the capitalist society argue that this is the optimal form of functioning of business entities. And in some ways they are right, because there are positive aspects in this:
- The ability to continuously increase production capacity, since it is much easier for large concerns to survive in today's competitive market environment.
- A financial corporation is often a great bait for an investor. Still, there is a greater chance that the holder of foreign capital will invest in a large company, rather than take the risk of making deals with shell companies.
- Such associations, as a rule, have a multi-year long-term perspective and a strategic development plan, which to some extent guarantees reliability and financial stability.
- What does a corporation mean? Distribution of rights. Therefore, in particular, it is much more profitable for shareholders to bear partial responsibility for the company's activities than full responsibility.
Flaws
As is typical of the absolute form of entrepreneurial activity, corporations have a number of disadvantages:
- It should not be forgotten that in such subjects of activity, control and management is carried out by various groups of officials, which can cause conflicting situations and untimely response to thoseor other negative points.
- Increased level of taxation. Since both the share of net profit and dividends are subject to transfer to the state treasury.
- A huge level of potential and ways for managers to abuse their position. For example, if the company is not doing well, then management may decide to issue additional securities, the proceeds of which will subsequently cover the losses incurred earlier.
What is a corporation in Russia
Principles and forms of doing business in Russia today are so diverse that here you can meet both a lot of private entrepreneurs and small LLCs, holdings just starting their activities and powerful sharks represented by Sibneft and Gazprom.
Despite the fact that each of them pursues different goals and has huge differences in profits and sales, there are still a number of goals that everyone adheres to without exception:
- maximizing the production and scientific and technical relationship between the participants of the holdings, while optimizing the distribution of responsibility to senior officials and owners;
- strategic management bodies control the performance of enterprises with full responsibility;
- while officials "on the ground" are in charge;
- especially large corporations are trying to introduce special economic centers into the company that deal withadministration of the current activities of a business entity;
- Intercompany trade relations are subject to special conditions.
Conclusions
So, we examined what a corporation is, what are its varieties, found out what functions it performs, and revealed both the advantages and disadvantages of this form of organizational activity.
We must understand that in the regime of our post-Soviet mixed economy we are too far from a capitalist society, and are we striving for this? There are too many one-day firms and small entrepreneurs without special strategic plans. But, nevertheless, the vast majority of the Western business world considers this form of organizational activity to be quite successful.
Who knows, perhaps in a few decades, modern entrepreneurs will have no choice but to unite in larger commercial alliances in order to survive in today's competitive market society, but for now, we strive for the best.
