2Characteristics of Corporations Corporation: business owned by stockholdersThese shareholders have limited liability for the company’s debts and lossesThey acquire ownership through the purchase of stock—shares of ownership in the corporation
3Characteristics of Corporations (continued) If a company does well and earns a profit, stockholders may receive dividends—part of the profit paid to stockholders
5Characteristics of Corporations (continued) Corporations make up 20% of all businesses in the U.S.Public corporation: a corporation that issues stock that can be freely bought and sold
6Characteristics of Corporations (continued) Private corporation: corporation that retains control over who can buy and sell the stock
7Advantages of Corporations Access to resources: Easy to raise money through the sale of stocks and bondsBonds: a contract issued by a corporation that promises to repay borrowed money plus interest, on a fixed schedule
8Advantages of Corporations (continued) Professional managers: CEOs, etc. are in charge of the corporationLimited liability for debts/losses
9Advantages of Corporations (continued) Unlimited life: they continue to exist even after a change in ownership
10Disadvantages of Corporations Start-up cost and effort: expensive and lots of paperworkHeavy regulations: stockholders meetings and annual reports
11Disadvantages of Corporations (continued) Double taxation: must pay taxes on profits and on dividends—the corporate profits paid to stockholdersLoss of control: some control may be lost to the board of directors
12Business Consolidation Horizontal merger: when 2 companies that produce the same product mergeExample: car companies
13Business Consolidation (continued) Vertical merger: when 2 companies involved in different steps of marketing/producing a specific product merge
19FranchiseFranchise: business made up of semi-independent businesses that offer the same products or servicesExample: McDonald’s
20Advantages of Franchises Proven/well-known productTraining in how to run the business is givenFranchiser pays for advertising
21Disadvantages of Franchises Start-up costsSharing profits with franchiserMust follow franchisers’ rules
22Examples: credit unions, producer’s co-ops, etc. CooperativesCooperative: business operated for the shared benefit of its owner, who are also its customersExamples: credit unions, producer’s co-ops, etc.
23Nonprofit Organization Nonprofit organization: institution that acts like a business organization but its purpose is to benefit society not to make a profitExample: Habitat for Humanity
24Questions1. What are the benefits of forming a conglomerate?
252. In what ways might a vertical merger in the oil industry influence gas prices?
263. What would be the outcome of raising the fees and requiring more paperwork in order to start a corporation?
274. How is a franchise “an almost independent” business?