Corporations, Mergers, and Multinationals

Corporations a legal entity, or being, owned by individual stockholders, each of whom faces limited liability for the firm’s debt Legal identity separate from those of its owners Pay taxes, may engage in business, make contracts and take legal actions

Stock shares which represent their portion of ownership in the corporation

Types of Corporations Closely Held Corporations: corporations that issues stock to only a few people, often family members

Types of Corporations continued… Publicly Held Corporations: Corporation that sells stock on the open market

Corporate structure Basic structure Board of Directors Appointed officers Officers hire managers

Advantages of Incorporation Advantages for Stockholders Investors do not carry responsibilities for the corporation’s actions Only lose the investment Shares are transferable

Advantages for the Corporation Potential for growth Selling shares can raise money to purchase capital Can borrow money through the use of bonds a certificate issued by the corporation, which promises to repay with interest the amount it borrowed from a buyer Corporations can do business indefinitely

Disadvantages of Incorporation Difficulty and Expense of Start-up + File for a certificate of incorporation, or corporate charter corporate name statement of purpose Must be reviewed by state officials

Disadvantages of Incorporation Loss of Control Managers, and board of directors, manage the corporation Regulation Most regulated type of business

Double Taxation Corporations must pay taxes on their income Stockholders have to pay tax on dividends portion of corporate paid out to stockholders Capital gains tax collected when investors sell out

Corporate Combinations Horizontal Mergers Two or more firms competing in the same market with the same good or service merge DaimlerChrysler

Corporate Combinations continued … Vertical Mergers Two or more firms involved in different stages of producing the same good or service merge “Ford buying Bridgestone tires”

Corporate Combinations Continued … Conglomerates Business combination merging more than three businesses that make unrelated products G.E.

Multinational Corporations A large corporation that produces and sells its goods and services throughout the world must obey laws and pay taxes in each country

Advantages Provide product and jobs around the world Spread new technologies Help poorer nations gain better living conditions

Disadvantages Unduly influence the culture and politics Low wage jobs and poor working conditions