A Policy for Corporations

Lars Poulsen - 2020-11-21

Any business larger than a dozen employees will need to be created as a corporation of some kind. This allows it to survive over time despite ownership changes, and it also allows a systematic way to regulate the behaviors of large businesses.

What is a corporation?

A corporation is an entity that has some aspects of personhood, even if it is not a person but a group of persons acting in concert and under defined rules. You could say that it is a specialized for of an association.

A corporation can conduct business, buying and selling goods and services, receiving income, paying bills and employing people. It can own assets and take on debt. And if it has a net income, it should pay taxes.

Most corporations are for-profit businesses, trying to earn a net income (profit) and and distribute that profit to its owners after paying taxes on it.

Some corporations are not-for-profit entities, serving the community through education, culture, religious services, charitable services or land conservancy. These include private schools, museums, universities, churches (and synagogues and mosques), public radio and television stations and many other beneficial institutions.

It is notable that many of the benevolent services can also be done as private for-profit enterprises. It has also been observed that some non-profit organizations are controlled by the small circle of people on their board and pay those individuals high salaries similar to what very large businesses pay their senior managers, even when the rest of their employees are paid little or nothing. (The American Red Cross was found to be doing this to the dismay of the people that had donated to them.)

We have created many - often confusing - variations on the corporate formation structures, mostly to create tax loopholes. You may look up the definitions of C-corporations, S-corporations, Limited Liability Companies to gain some appreciation of this complexity.

Corporations can also choose where they are registered in order to shop around for the state that makes the fewest demands on them. Financial institutions generally prefer to incorporate under the laws of Delaware, because that state is quite tolerant of high interest rates and fees charged by credit card lenders. Many small businesses with less savory business practices like to incorporate in Nevada because that state allows a business to keep secret who owns it.


I would like to see some changes in the corporation laws; some examples follow.

Fewer Variations

I think it would be easier for everyone if we had fewer legal structures to choose between. I honestly think the following should suffice:

Less Venue Shopping

I think that large, publicly traded companies should be incorporated under a federal charter and policed by the SEC. For sure, any company valued at or having gross revenues of a billion dollars or more should be federally chartered.

Small businesses should be incorporated in their home state. For most small businesses, it is perfectly obvious where they are located. Some of the following factors may be considered:

For most businesses, most or all of these will be the same.

Corporate Income Tax

The current corporate income tax system is complicated. Corporations pay salaries and other ordinary business expenses that are deducted from the corporate income before tax is calculated. Then they pay corporate income tax on a progressive scale, before they calculate the profit that can be distributed as dividends. When the shareholders receive the dividends, they pay personal income tax on them, but at a reduced rate (15-20%). This leads to many accounting manipulations to avoid paying the two layers of tax.

I would propose to make dividends paid to US resident taxpayers a qualified deductible business expense, but then tax them on the receiving end as ordinary income.

Alternative Minimum Tax?

Over the years, governments have instituted may special provisions allowing corporate tax credits for certain types of investments and other transactions. Ostensibly, these benefit society by encouraging the companies to do hings that benefit the public. Some of the largest corporations have employed armies of tax lawyers and accounts to take advantage of these provisions to such an extent that they have managed to offset their entire corporate income tax - or even have their federal tab bill be negative. I find this offensive and abusive. We should eliminate these provisions, but it will take a long time to undo all the special interest provisions buried in 20,000 pages of tax law. As a stopgap, we might do what was done to avoid similar abuses in the personal tax rules: Enact a minimum tax amount as a percentage of gross revenues. Maybe 5% of gross.

Repatriation Tax Holidays

For many years, multinational corporations have been playing accounting games to place their profits in subsidiaries in low-tax countries, often by playing games with "transfer pricing". When a multinational corporation such as Apple or Exxon is selling goods in Europe or India, they can set the price that the foreign subsidiary pays for the goods higher or lower than the real cost (or the price at which the USA divisions buy the goods). If the set that price low, the foreign subsidiary becomes more profitable. Then they complain to the American legislators that the US tax rates are so punitive that they can't afford to bring the profits home where they can be paid out to the American shareholders. Every so often, Congress gives in and makes a special exemption for repatriated profits for a single year. Then they bring the money home, and pay it out as dividends and/or bonuses to managers. This has become so commonplace that they now ONLY bring the profits home when there is such an exemption. That is bad policy. Making dividends to taxpaying US shareholders deductible for the corporation would be much better for everyone.


We have seen many cases when a corporation is caught doing illegal things, charges are brought by state or federal attorneys, and they then case is settled for a - sometimes quite small - payment, without the company admitting guilt. That is offensive to me.

We have even seen companies pleading guilty to federal felony crimes, yet no personal criminal liability attaches to their executives. (Think Purdue Pharma!) That is even more offensive to me. I would like to see criminal charges brought against the CEO and where applicable board members of these companies. Prison time AND forfeiture of ill-gotten profits. Without this, getting caught breaking the law is just another business expense.

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