Chapter 8: Business Organizations Section 3: Corporations, Mergers and Multinationals

Corporations Most complicated form of business structure Owned by individual stockholders They have limited liability They buy stock – a document that shows they have paid money to be a part-owner of the corporation It is a legal entity (an individual)

Corporations It’s a legal identity??? It can make contracts It can sue It can be sued It pays its own taxes It can make donations to political causes

Corporate Structure

Corporate Structure Stockholders invest money into the company. (part owners) They get dividends (money) a vote for Board of Directors members

Corporate Structure The Board of Directors selects the President also known as CEO (Chief Executive Officer) to run the business

Corporate Structure The President selects corporate officers to help administer the company. They usually are Chief Operating Officer (COO) – day to day operations Chief Financial Officer (CFO) – financial matters Secretary – paperwork

Corporate Structure The Corporate Officers oversee the workforce which does the everyday labor.

Corporate Structure

Types of Corporations Closely held Publicly held All or almost all stocks are sold to family members Family members pass stocks to other family members Keeps it out of other people’s hands Publicly held Open to the public to buy and sell stock Stock is sold on a “stock market” or “stock exchange”

Corporate Advantages Investors Limited liability Investors (stockholders) can only lose amount of money they put into the company Lawsuits paid by corporate funds, not invested funds Flexibility Easy to transfer stocks

Corporate Advantages To the Company Opportunity to grow Sell stocks Sell bonds Bonds are IOUs No ownership involved Has the funds to hire the BEST Long life

Disadvantages Difficult to start up Double Taxation A LOT of paperwork Double Taxation Corporate profits are taxed Investor dividends are taxed Capital gains from sales of stock are taxed Original owners lose some degree of control A LOT of government regulations

Corporate Combinations Mergers Horizontal Merger Combine with another company Both companies supply the same good or service

Corporate Combinations Mergers Vertical Merger . Combine with . another company . The companies deliver different parts which work together to . deliver a final good

Corporate Combinations Conglomerations Two or more companies join together The products the companies make are completely unrelated

Corporations Multinational Corporations Companies (corporations) which exist in Many (multi) different Countries (national)