8-3: Corporations, Mergers, and Multinationals

Characteristics of Corporations Corporation: business owned by stockholders These shareholders have limited liability for the company’s debts and losses They acquire ownership through the purchase of stock—shares of ownership in the corporation

Characteristics of Corporations (continued) If a company does well and earns a profit, stockholders may receive dividends—part of the profit paid to stockholders

Characteristics 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

Characteristics of Corporations (continued) Private corporation: corporation that retains control over who can buy and sell the stock

Advantages of Corporations Access to resources: Easy to raise money through the sale of stocks and bonds Bonds: a contract issued by a corporation that promises to repay borrowed money plus interest, on a fixed schedule

Advantages of Corporations (continued) Professional managers: CEOs, etc. are in charge of the corporation Limited liability for debts/losses

Advantages of Corporations (continued) Unlimited life: they continue to exist even after a change in ownership

Disadvantages of Corporations Start-up cost and effort: expensive and lots of paperwork Heavy regulations: stockholders meetings and annual reports

Disadvantages of Corporations (continued) Double taxation: must pay taxes on profits and on dividends—the corporate profits paid to stockholders Loss of control: some control may be lost to the board of directors

Business Consolidation Horizontal merger: when 2 companies that produce the same product merge Example: car companies

Business Consolidation (continued) Vertical merger: when 2 companies involved in different steps of marketing/producing a specific product merge

Business Consolidation (continued) Conglomerate: the merger of companies that produce unrelated products

Business Consolidation (continued) Multinational corporation: a large corporation with branches in several countries Example: General Electric

8-4: Franchises, Co-ops, and Nonprofits

Franchise Franchise: business made up of semi-independent businesses that offer the same products or services Example: McDonald’s

Advantages of Franchises Proven/well-known product Training in how to run the business is given Franchiser pays for advertising

Disadvantages of Franchises Start-up costs Sharing profits with franchiser Must follow franchisers’ rules

Examples: credit unions, producer’s co-ops, etc. Cooperatives Cooperative: business operated for the shared benefit of its owner, who are also its customers Examples: credit unions, producer’s co-ops, etc.

Nonprofit Organization Nonprofit organization: institution that acts like a business organization but its purpose is to benefit society not to make a profit Example: Habitat for Humanity

Questions 1. What are the benefits of forming a conglomerate?

2. In what ways might a vertical merger in the oil industry influence gas prices?

3. What would be the outcome of raising the fees and requiring more paperwork in order to start a corporation?

4. How is a franchise “an almost independent” business?