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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
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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
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
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?
