Forms of Business Ownership ~ The Corporation ~ & ~ The Stock Market ~
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Presentation on theme: "Forms of Business Ownership ~ The Corporation ~ & ~ The Stock Market ~"— Presentation transcript:
1 Forms of Business Ownership ~ The Corporation ~ & ~ The Stock Market ~
2 CorporationLegal entity that exists independently of its owners who are the shareholders.Has the same rights and obligations under Canadian law as a natural personIt can be found guilty of committing a crime
3 CorporationBrought into existence by drawing up and filing with the proper government agency a document called the articles of incorporationA lawyer and accountant are often needed to prepare this document
4 Corporation Articles of Incorporation include information such as: Name of corporationHeadquarters of corporationType of corporationNumber of shares allowed to be issued to the public for purchase
5 Classification of Corporations 1. Non-Profit Corporation2. Crown Corporation3. Private Corporation4. Public Corporation
6 Non-Profit Corporations Purpose is to undertake fundraising, to do research and to lobby for a particular cause in order to help peopleExample: United Way, Museums, Religious organizations, athletic and artistic organizations.
7 Crown CorporationOwned by the federal, provincial, or municipal governmentsFunction is to provide a special service to the publicExamples: Bank of Canada, Royal Canadian Mint, Canada Post, Canadian Broadcasting Corp. (CBC)
8 Private Corporation Can have up to 50 shareholders A single person who incorporates may have only one shareholder – him or herself.Usually small but not alwaysEatons now owned by Sears was a private corporation
9 Public CorporationDoes not have a restriction on the number of shareholders. (unlimited number)Shares are bought and sold (traded) on the stock exchanges, such as the Toronto Stock Exchange, the Vancouver Stock Exchange.Examples include: Tim Hortons, Google,
10 (Chief Executive Officer) Owners/Shareholders(Elect Board of Directors)Board of Directors(hire officers)STRUCTURE OF ACORPORATIONOfficersi.e. CEO(Chief Executive Officer)(set corporateobjectives and hire managers)Managers(Supervise Employees)Employees
11 Structure of a Corporation The shareholders elect a board of directors, who direct the overall affairs of the corporationThe BOD hire the officers (i.e. the President of the corporation) who decide on the objectives for the company and hire the managers and essentially run the day to day operations of the business.The managers supervise the employees.
12 Corporation Advantages Owners are only liable for the amount they invest – Limited liabilityHas more financial resources to expand and grow (money collected from the selling of shares)Easier to get a loan from a bank because it has more assets to use as security (collateral”)The tax rate is lower than for a sole proprietorship.(40-50% versus 23%)Ownership is easily transferableDisadvantagesMore complicated to set up due to government regulationsMust be registered in every province it operatesTime consuming process and expensiveClosing a corporation can be time consuming and expensiveBusiness is managed by employees who may or may not be shareholders.Must publish an annual report outlining the companies financial position which can benefit competitorsChanges in stock market could impact future financial resources raised through issuing new stock to sell to the public
13 Corporations and the Stock Market Once the company has been incorporated and the articles of incorporation have been approved, the company issues shares to the general public who may purchase them for ownership of the company.The first time a corporation issues shares to the public to purchase is called an IPO.
14 The Initial Public Offering (IPO) A Stock brokerage (business that sells and buys shares on behalf of other businesses and individuals for a fee) is usually hired to handle the sale of shares to the public.An initial price offering is made the day the market opensFor example, when Google went public in 2004, its shares were initially offered at $85.Supply and demand for the shares will determine by how much the initial price of the share increases or decreases.The money collected from the initial shares being offered goes back to the corporation to be used by the business.Once a share is purchased, it is now out in the stock market where the shareholder can hold or sell his/her shares to another interested buyer for an agreed price.
16 The Stock MarketMarket where people come to sell and buy shares/stocks of companies.Person A wants to sell his/her shares of Google.Person B wants to purchase shares of Google.The stock brokers hooks Person A and B together to make the deal.The stock brokers receives a fee for their services from the buyer and seller.The price of the shares will depend on supply and demand. If more people want to buy then sell, the price may higher than it was the previous day.
17 The Stock Market How do people make money in the stock market? 1. Purchase shares of a company and sell them at a higher price to another interested buyer later on.Example: In 2004, Google shares issued at $85 a share. In November of 2006, they were selling at $500+ a shareIf you purchased 100 shares at $85 per share and sold them for $500 per share, how much money have you made?Purchase price = $85 x 100 = $8 500Selling price = $500 x 100 = $50 000Personal Profit (Return on Your Investment )= $ $ 8500 = $41 500ROI = ( – 8 500) / X 100 = 488% increase
18 The Stock MarketShareholders receive dividends on the shares they own.Board of Directors declare a .50 cent dividend at year end)Each shareholder will receive .50 cents for every share s/he owns in the company.Dividends are like interest. A bank pays you a certain % of interest (i.e. 2% per year) on the money you have in your savings account.Dividends, however, are not guaranteed to be paid out every year, as it depends on how profitable the company has been and what its cash flow is.Example: You own 100 shares of Google. At the end of a business year, Google has made a significant profit and the BOD declares a .50 cent dividend.How much money did you make: $.50 x 100 = $50.00