A Basic Business Reader Chapter 3 Forms of Business Ownership (2)

Objectives After studying this chapter you will be able to: u Understand the nature of a corporation and its advantages and disadvantages. u Describe how a corporation is created and managed. u Understand how the form of organization affects (1) taxes, (2) the distribution of profits, (3) the ownership and control of a business, and (4) the liabilities of business owners.

What is a corporation? A corporation is a legal body created by the state. As a legal body, it is able: - to buy, own, and transfer property; - to enter into contracts with individuals or with other legal bodies; - to sue or be sued in its own name.

Private and public corporations A private corporation is one that has only a few shareholders. Private corporations do not have to: - produce financial reports to the public; - go through complex procedures to make decisions; - hold public stockholder meetings.

Private and public corporations A public corporation is one that issues certificates of ownership or shares of common stock that may be traded on stock exchanges. Public corporations have to: - produce financial reports to the public; - go through complex procedures to make decisions; - hold public stockholder meetings.

Common stock vs. preferred stock u Common stock - Anyone can buy and sell shares of common stock. - Owners have a right to vote on the company’s board of director. - Owners are entitled to receive dividend payments.

Common stock and preferred stock u Preferred stock - Owners get preference in the distribution of the company’s earnings. - Owners receive a fixed dividend before common stockholders receive any dividends. - Owners usually do not have the right to vote on the company’s board of directors.

Creation of a corporation (as in the U.S.) 1. Prospectus 招股说明书 2. Articles of incorporation 公司章程 ↓ 3. Corporate charter granted 授予的公司执照 ↓ 4. Board of directors elected 选举的董事会 ↓

Management of Corporations Board of directors: to ensure that the objectives of the corporation are achieved on schedule. Corporate officers: responsible to the board of directors for the management and daily operations of the firm.

Advantages of a corporation u Limited liability; u Ease of transferring ownership; u Continuous life; u Ease of attracting capital; u Large size.

Disadvantages of a corporation u Government regulations; u Higher taxes; u Lack of personal interest; u Lack of secrecy; u Rigid structure; u Difficulty in creating.

Workshop Presentation work Select a corporation and tell people its major features. Discussion topic Would you like to work in a sole proprietorship, a partnership, or a corporation? Give your reasons.