2 Characteristics of Corporations Corporation: business owned by stockholdersThese shareholders have limited liability for the company’s debts and lossesThey acquire ownership through the purchase of stock—shares of ownership in the corporation
3 Characteristics of Corporations (continued) If a company does well and earns a profit, stockholders may receive dividends—part of the profit paid to stockholders
5 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
6 Characteristics of Corporations (continued) Private corporation: corporation that retains control over who can buy and sell the stock
7 Advantages of Corporations Access to resources: Easy to raise money through the sale of stocks and bondsBonds: a contract issued by a corporation that promises to repay borrowed money plus interest, on a fixed schedule
8 Advantages of Corporations (continued) Professional managers: CEOs, etc. are in charge of the corporationLimited liability for debts/losses
9 Advantages of Corporations (continued) Unlimited life: they continue to exist even after a change in ownership
10 Disadvantages of Corporations Start-up cost and effort: expensive and lots of paperworkHeavy regulations: stockholders meetings and annual reports
11 Disadvantages of Corporations (continued) Double taxation: must pay taxes on profits and on dividends—the corporate profits paid to stockholdersLoss of control: some control may be lost to the board of directors
12 Business Consolidation Horizontal merger: when 2 companies that produce the same product mergeExample: car companies
13 Business Consolidation (continued) Vertical merger: when 2 companies involved in different steps of marketing/producing a specific product merge
19 FranchiseFranchise: business made up of semi-independent businesses that offer the same products or servicesExample: McDonald’s
20 Advantages of Franchises Proven/well-known productTraining in how to run the business is givenFranchiser pays for advertising
21 Disadvantages of Franchises Start-up costsSharing profits with franchiserMust follow franchisers’ rules
22 Examples: credit unions, producer’s co-ops, etc. CooperativesCooperative: business operated for the shared benefit of its owner, who are also its customersExamples: credit unions, producer’s co-ops, etc.
23 Nonprofit Organization Nonprofit organization: institution that acts like a business organization but its purpose is to benefit society not to make a profitExample: Habitat for Humanity
24 Questions1. What are the benefits of forming a conglomerate?
25 2. In what ways might a vertical merger in the oil industry influence gas prices?
26 3. What would be the outcome of raising the fees and requiring more paperwork in order to start a corporation?
27 4. How is a franchise “an almost independent” business?