Ch. 8 sec. 2 & 3 Corporations and Franchises Economics Ch. 8 sec. 2 & 3 Corporations and Franchises

Corporation Legal entity with an existence that is distinct from the people who organize, own, and run it 5 million corporations in U.S. Sales range from $100,000 to $499,999 20% of all businesses and 90% of all products

Types of Corporations Private Publicly Traded Ownership is limited to a few people, only family members, shares are not publicly traded Mars, Meijer, Enterprise, Menard, Levi Strauss & Co Publicly Traded Owned by many shareholders, shares sold publicly Nike, McDonalds, Microsoft, Apple, Aeropostale

Advantages Of Corporations Benefits For Stockholders: If A Company Fails- The Loss To Stockholders Is Limited To The Amount They Invested Stockholders May Take Back Part or all Of Their Investment By Selling Stock

Advantages Of Corporations Limited Liability For Corporation’s Founders- The Corporation Assumes Financial and Legal Responsibilities. Management- Departments Are Formed To Efficiently Handle The Problems Of Running A Business Easy To Raise Capital- Adding Share Holders Will Generate Revenue That Will Help The Business Grow

Disadvantages Strong Government Regulation- Business Practices Are Closely Watched By The Government. Taxes- Corporations Pay A Higher Tax On The Profit They Earn. Slow Decision Making Process- The Amount Of People Involved Makes Decision Making A Slow Process

Disadvantage continued Stockholders Are Removed From The Daily Operations Of The Business and Have Little Control. (This May Be Both Good and Bad)

S Corporation Organization that offers limited liability combined with the single taxation of business income Must have 75 stockholders w/no foreign stockholders

Limited Liability Company (LLC) Business w/limited liability for some owners Single Taxation NO ownership restrictions

Mergers Horizontal Mergers Vertical Mergers Conglomerate 2 or more firms competing in the same market Daimler-Benz and Chrysler, Cingular and AT&T XM Radio and Sirus Vertical Mergers 2 or more firms involved in different stages of producing the same good or service Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS, and other programming Conglomerate Business combination merging more than 3 businesses that make unrelated products Walt Disney and ABC

Multinational Corporations (MNC’s) Large corporations that produces and sells its goods and services throughout the world Red Bull Sony American Express SunDisk Nike Nintendo McDonalds Walt Disney Company

Structure Of Corporations Cooperatives- a business collectively by a group of people. An apartment complex Nonprofit Organization- provides goods and services without earning a profit

Franchises Semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area

Advantages Management training and support Standardized quality National advertising program Financial assistance Centralized borrowing power

Disadvantages High franchising fees and royalties Strict operating schedule Purchasing restrictions Limited Product line http://www.entrepreneur.com/franchises/index.html