1. 1 Essential Question: Describe what a corporation is, explain why forming a corporation is considered difficult; compare and contrast common stock from preferred stock and explain the differences between stocks and bonds, and list advantages and disadvantages of corporations. Corporations SECTION 3

2. 2 What is a Corporation (Characteristics) A corporation is a business organization It is a legal entity which means it can own property, hire/fire workers, and be sued Its ownership is divided into certificates known as stock. This is the largest B.O. in terms of employees, revenue, and money making ability. Corporations SECTION 3

3. 3 To form a corporation: Submit an application for the articles of incorporation and obtain a corporate charter. This takes time to get government approval The application fee is often substantial Many applications are rejected and require re-submission (and a new fee) Corporations SECTION 3

4. 4 Information required by the articles of incorporation: the name and purpose of the proposed corporation the address of the corporate headquarters the method of fundraising to be used by the corporation (Stock, Private Investors, Bond- etc.) the amount of money the corporation expects to raise the names and addresses of the major corporate officers Corporations SECTION 3

5. 5 Corporate structure: Ownership by shareholders (stock owners) headed by a board of directors to make decisions- BOD chosen by shareholder vote. run by corporate officers—CEO, president, vice presidents, etc.—who carry out decisions made by the board made up of department heads and other employees to perform day-to-day tasks Corporations SECTION 3

6. 6 What is stock Corporation gives itself a value based on business projections and divides this value into certificates of ownership known as stock. It sells these certificates to raise money to fund operations. Each certificate is called a share and starts with a specified value. If stock is the whole pizza, shares are the slices! Once you own a share, you can sell it for profit if you choose Corporations SECTION 3

7. 7 Two types of Stock: Common Stock: Allows shareholder to voice opinion in company affairs Eligible to receive dividends Preferred Stock: Doesn’t allow shareholders to participate in operations of company Gets paid dividend before common stock Corporations SECTION 3

8. 8 Advantages/Disadvantages of owning stock A.) Stock is the easiest way to OWN part of a company Requires only enough money to purchase a share Owners are not responsible for operations, decisions, and are NOT liable A.) Owners can resell shares for profit D.) Unless you own a significant number of shares, you have little impact on the profits/loss of the company Corporations SECTION 3

9. 9 Corporate Bonds: A certificate issued by the corporation in exchange for money from investor Different because the bondholder does not own part of company When term of debt is up, bondholder is repaid the loan (principal) plus interest Corporations SECTION 3

10. 10 Advantages of organizing a corporation: limited liability- if company fails, personal property is not involved separation of ownership from management- allows for clinical thought- not emotional ease of raising capital- The better the company does, the more investors are willing to invest. longevity Corporations SECTION 3

11. 11 Disadvantages of organizing a corporation: costly and difficult to obtain a corporate charter number of government regulations to follow slow decision-making process- many people have to review and be given opportunity to give input The larger the corporation, the more opportunity for tension in terms of company goals, operations, and direction Corporations SECTION 3