A corporation is a legal entity owned by stockholders that is authorized by law to act as a single person. As such, the affairs of the corporation are separate from those of the owners, which gives them limited LIABILITY and thus a financial advantage. Under most circumstances, the owners’ liability is limited to the CAPITAL they have invested in the company. Corporations are created by acquiring a corporate charter from state offices, often the office of the secretary of state. In applying for a charter, a corporation submits its articles of INCORPORATION, listing the company name, address, number of shares of stock the company is authorized to issue, and usually the names and addresses of the individuals who will serve as the initial BOARD OF DIRECTORS. The board of directors represent the interests of stockholders and oversees the actions of managers. A corporation may have a few or many stockholders, based on who has purchased shares of COMMON STOCK in the company. For decades the most widely held stock in the United States was American Telephone & Telegraph (ATT), with over 80,000 shareholders. Only about 20 percent of businesses in the United States are incorporated, but they represent a majority of business activity in the country. In addition to limited liability, the other major advantage of corporations is the ability to raise capital. Often a new business starts out as a sole PROPRIETORSHIP; expands by taking on partners; and, if promising or successful, funds further growth by incorporating. Selling shares of stock representing ownership interest in the company allows corporations to obtain funds needed to create or expand business operations without having to pay interest, but it reduces the ownership and control of initial owners of the business. Stockholders take an EQUITY interest in the company with the expectation of sharing in the company’s future PROFITS, either through DIVIDEND payments or appreciation of the shares of stock in the marketplace as the company earns profits. Corporations also raise capital by selling BONDS and through bank LOANS issued in the corporation’s name. The selling of shares in a new corporation is called an INITIAL PUBLIC OFFERING (IPO). IPOs in technology stocks were highly sought after by investors during the rapid growth of the U.S. STOCK MARKET in the late 1990s. Since most new corporations often have only an idea, a BUSINESS PLAN, and little or no track record, shares of IPO companies are considered highly speculative investments. Many times entrepreneurs create corporations to expand their PRODUCTs and SERVICES into larger markets. While they may have worked night and day for years developing their business and are reluctant to lose control of their enterprise, they need the capital and/or skill of managers to make their business grow. On the one hand, managers can provide new business expertise, but on the other they are unlikely to work as hard as the entrepreneur who created the business. To overcome the problem of managers not being owners of companies, many U.S. companies offer employees STOCK OPTIONS—that is, the opportunity to purchase shares of stock at a specified price for a period of time. If the company does well and the stock price rises, employees can exercise their stock options, simultaneously buying stock from the company at the agreed-on price and selling the shares in the stock market at the current market price. This allows employees to share in a company’s profits. Software developers at Microsoft Corporation were known to have cots put in their office cubicles so they could sleep in their offices after working 15- and 20-hour days. Many of these employees have become Microsoft millionaires through stock options offered to dedicated employees. As demonstrated in the corporate corruption scandals in 2002, stock options also provide incentives for executives to artificially increase share prices in order to cash in stock options for personal gain. A disadvantage of corporations is double taxation. Because they are recognized as a separate legal entity, corporations pay taxes on their INCOMEs. When they distribute income in the form of dividends, SHAREHOLDERS must report these distributions and pay personal income tax on them. Thus, profits are taxed first as corporate income and second as personal income. Similarly, when shareholders sell their stock for a profit, they must report the gain on their personal tax return.