Lesson: Chapter 8 section 3 By:Christen Romero Osvaldo Fernandez Adrian Santos

Bell Ringer What do you feel a corporation is ?

Vocabulary

Advantages of Incorporation Incorporation, or forming a corporation, offers advantages to both the individual owners, or stockholders, and to the corporation itself. Which include Limited liability for owners Limited liability for owners Transferable ownership Transferable ownership Ability to attract capital Ability to attract capital Long life Long life

Disadvantages of Incorporation Corporations are not without their disadvantages: Expense and difficulty of start up Expense and difficulty of start up Double taxation Double taxation Potential loss of control by the founders Potential loss of control by the founders More legal requirements and regulations More legal requirements and regulations

Difficulty and Expense of Start-Up Firms that wish to incorporate must first file for a state license known as a certificate of incorporation, or corporate character. The application includes crucial information such as The corporate name The corporate name Statement of purpose Statement of purpose Length of time that the business will run (usually “for perpetuity” or without limit) Length of time that the business will run (usually “for perpetuity” or without limit) Founders’ names and addresses Founders’ names and addresses Headquarters’ business address Headquarters’ business address Method of fund raising Method of fund raising The rules for the corporation’s management The rules for the corporation’s management Once state officials review and approve the application, they grant a corporate charter. Then the corporation may organize itself to produce and sell a good or service.

Double Taxation The law considers corporations legal entities separate from their owners. Corporations, therefore, must pay taxes on their income. Profit is a form of income. When stockholders receive income from the corporation in the form of dividends-the portion of corporate profits paid out to stockholders- the stockholders must pay personal income tax on those dividends. This double taxation keeps firms from incorporating.

Quiz for Chapter 8 Section 3 1.Describe what a corporation is? 2. In your own words what do you think a bond does? 3. Why is a certificate of incorporation significant for a corporation? 4. Compare and Contrast a closely held corporation and publicly held corporation. 5. How would you create a corporation? 6. What do you think of a multinational corporation? 7. Explain the difference between horizontal and vertical mergers. 8. What information is required in a certificate of incorporation? 9.Why must a tax holders pay taxes on dividends? 10.Why are corporations called multinational corporations?