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How do American Corporations Differ from Foreign Corporations?

Marsha A. Tisdale
Marsha A. Tisdale

American corporations are similar to those established in other nations, as much of the law governing commerce originated in Britain. Corporations are entities that have been given a charter to do business within a specific jurisdiction. A company can be designated either a domestic or foreign corporation. Foreign corporations are companies that operate in a geographical area other than the one in which they were originally incorporated. Therefore, a foreign corporation may not necessarily refer to a company that was formed outside the country in which it operates.

There are many American corporations that are multinational, meaning that they are registered to do business in more than one country at a time. Organizational systems in American corporations as well as in corporations formed under other national governments vary in structure. The most common type of company is the general corporation. It is set up as a separate legal entity from the owners and may have an unlimited number of stockholders who have limited liability. That is, they can lose the amount they invested, but creditors cannot lay claim to their personal assets to meet the debts of the company.

A corporation operates within a specific jurisdiction.
A corporation operates within a specific jurisdiction.

Another type of American corporations is a close corporation, which is organized in a similar manner but has limited stockholders. Stock is not offered to the public through a stock exchange. The stockholders are generally more involved in the management of the corporation. Another name for a close corporation is private corporation.

In the US, an alternate form of corporation called an S corporation may be formed that has some different rules than the general corporation, or C corporation. The S corporation combines advantages of a sole proprietorship or partnership with the advantages of a corporation. Members are more involved in the management and avoid the disadvantage of double taxation that general corporations experience. In addition, the S corporation shareholders are exempt from personal liability for business debt.

Limited liability corporations were not introduced in the U.S. until 1977.
Limited liability corporations were not introduced in the U.S. until 1977.

Limited liability companies (LLC) have been a form of business structure in both Europe and Latin America but were not introduced in the US until 1977. Owners of an LLC enjoy liability protection similar to a corporation as well as the tax advantage of partnerships and S corporations. LLCs also have fewer restrictions than the S corporation does, such as limited number or types of shareholders allowed.

Canada corporate regulation is similar to that of the US and Britain. It is relatively easy to incorporate a business in any of these countries. There are no restrictions in Canada for minimum company size or how many stockholders must be involved. The person incorporating must be of legal age, sound mind, and not be in bankruptcy. There is both a federal as well as provincial incorporation in Canada, whereas in the US companies are incorporated through state government.

Any group can form a corporation in England by filing a form stating the purpose of the company, the list of directors, and the initial capital. Articles of association are required to be filed in England, similar to the articles of incorporation required by American corporations. Both countries require an annual statement or report to be filed. For English corporations, there is a requirement for the word limitedto follow the name of the company.

Management structure under English law gives more power to the managing director, who is authorized to enter into all necessary transactions for the day-to-day operations of the company. In the US system, the shareholders appoint executive officers, including the president, vice president, and treasurer. The president and vice president have management authority, whereas the secretary and treasurer have only to fulfill administrative functions.

German and French law provide for a more complex management structure for public companies. The German government imposes a two-tier structure with a lower supervisory committee and the upper tier consisting of a management board. French management structure provides for the election of a board of directors who must appoint one of the board as the president, who then has the responsibility of general management. Dutch and Italian public companies are similar to the German pattern of management.

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    • A corporation operates within a specific jurisdiction.
      By: magdamosur
      A corporation operates within a specific jurisdiction.
    • Limited liability corporations were not introduced in the U.S. until 1977.
      By: FotolEdhar
      Limited liability corporations were not introduced in the U.S. until 1977.