Outcome: SWBAT to compare corporations and franchaises

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  You have an electronics repair shop that you would like to expand. You want to rent a store so that your business is more visible. You would like to However you have decided you do not want any more partners, you no longer want to consult with them about every little detail of the business. What you want are financial backers who will let you use their funds while letting you run the business. Imagine….

  What is a corporation? A type of business organization owned by many people but treated by law as though it were a person. For example it can own property, pay taxes and make contracts.  The corporation has a separate and distinct existence from the stock holders who own the corporation‘s stock  What is stock? A share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation Mini Lesson

 In terms of business done, (measured in dollars) the corporation is the most significant type of business organization in the United States today. Wal-Mart is the largest corporation in the US

  What are the different type of stock?  Common stock gives the investor part ownership in the corporation, a right to a percentage of the company’s profits and voting rights in the annual stockholders’ meeting. It does not guarantee a dividend  Preferred stock does not give voting rights but it guarantees a certain amount of dividend a year. Plus if the corporation goes out of business preferred shareholders first claim on whatever is left Mini Lesson

  What do you believe are the advantages and disadvantages of corporations Critical Thinking

 Mini Lesson Advantages Limited liability for the owners. Since a corporation is a separate and distinct legal entity, owners of a corporation are only indebted to the extent of their interest in the corporation. This means that the creditors of a corporation can only run after the assets of the corporation and not the personal assets of the stockholders in the settlement of the corporation’s debts and obligations. In other words stockholders enjoy a “shield” from most creditors. Ease on the sell and transfer. If the stock of a corporation is publicly traded, owners and investors can sell their ownership interest in a corporation in a matter of minutes through a stockbroker. If the stock is not publicly traded, the stock certificate can be transferred or assigned to another owner by executing a deed of assignment of shares of stock. Continuity. The corporation’s power of succession enables it to enjoy a continuous existence. Unlike a sole proprietorship, the death of a stockholder will not terminate the corporation. The corporation will continue as a separate and distinct legal entity and the shares of its interest can be transferred from one owner to another owner. Ease in raising money. Because of limited liability, ease of transfer of shares and continuity, investors are more attracted to investing in corporations rather than in sole proprietorships and partnerships. This attraction allows corporations to raise the capital needed to manage and expand their operations.

 Disadvantages Complexity in organization and regulation. To incorporate a business, an application with the Securities and Exchange Commission must be filed and approved. A higher capital requirement is also sometimes required for other type of corporations. Once approved, the corporation must comply with the numbers of regulations and reportorial requirements which are specifically implemented for corporations. Double taxation. A possibility of “double taxation may arise on the dividends it pays. The corporation is taxed on its income. Then, if the corporation distributes some of the net income to the stockholders as a dividend, the dividend will be taxed again on the stockholders’ personal income tax returns. Limited liability may weaken credit capacity. A corporation which doesn’t have a good financial condition and performance may drive away creditors specially that owners are enjoying limited liabilities. This may weaken the corporation’s capacity to borrow money to expand its operations. Centralized management. Its centralized management restricts a more active participation by stockholders who are not major owners in the conduct of corporate affairs. Mini Lesson