LOOK for WHAT?FINANCIALBACKERSUse their $$$ while you run the business
That’s what acorporation is!Owned by manyBy law is treated as though it were a personCan own propertyCan pay taxesCan sue & be suedCan make contracts, etc.
A separate & distinct existenceFrom stockholders who ownits STOCK= share of corporation’sownership, entitling buyer to part offuture profits & assets
Table 13 BUSINESSORGANIZATIONS p.145Corporations = ___% of businesses+ ___% of total business revenue19.988.8Partnerships are __ % of businesses.7.1
Major advantage ofcorporationsLIMITED LIABILITYIF corporation goes bankrupt or issued, only the business loses money &assets,NOT the stockholders.A MINUS – More taxes
Pros & Cons of CORPORATIONS• Profits & Losses• Liability• Management• Taxes• PersonalSatisfaction• Financing Growth• Life of the BusinessTable 12 p.144
Profits & LossesOwners OR _________StockholdersDO NOT have to invest timeTO MAKE MONEY
LIABILITYis LIMITEDIF it goes bankrupt/is sued, normallycreditors CANNOT take stockholders’personal property to pay debts
MANAGE+Responsibility is divided among manyDecisions made by trained peopleHandles big, complex operationsCarry on different business activities
MANAGEMENTDisadvantagesSlow decisionmakingInterests differManagement vs. Stockholders(= return on investment)
TAXESCorporate profits are taxed by:1. the federal2. some state3. some local governments.
SATISFAC+ Owning part of corporation- Little/No say in management
FINANCINGGROWTHCan use resources of investorsCan issue stock to raise capital
LIFE of theBUSINESSCan go on forever IF PROFITABLE
3 Things FoundersMUST DORegister with state (of headquarters)Sell StockElect a Board of Directors
REGISTERING COREvery state has laws, most are similarMust file ARTICLES of INCORPORATIONDOCUMENT with info aboutcorporation. Filed with state.
State grants a CORPORATIF articles of incorporationconform with state lawsCORPORATECHARTER
SELL STOCKSRaise funds for expansionSell COMMON or PREFERED STOCK1.Partial ownership2. % of future profits (after preferred stockholders are paid)3. Voting rights – annual stockholder meeting4. NO guarantee of dividendCOMMONSTOCK
PREFERREDSTOCK• Partial ownership• CANNOT vote• GUARANTEEDAnnual Dividend• IF corporationfolds, holders have1st claim onmoney aftercreditors are paid
It getsBIG!Stock may be traded in OTC market= Brokers buy & sell sharesContinues growth–may be sold on stock exchange
Naming the BOARD oSTOCKHOLDERS elect board according tocorporate BYLAWS at annual meetingRules of how stock is sold & dividends paidwith list of company officers’ duties.(Written after corporate charter is granted.
The BOARD supervisDOESN’T run daily businessHires officers-President, vice-president etc.Figure 36 page 146WHO reports to manufacturing V.P.?
French Fries?FRANCHISESHotels, gas stations, fast food chains• Pay a fee + % of revenue• Gets help to set up business,training, standards of businessoperationsFranchisee uses company’s name & sellsits products
REVIEWTable 14 p. 147 PROS & CONS Business Typesandexamples
SOLEPROPRIETORSHIPEXAMPLES:FOOD: Subway, McDonalds, 7-Eleven, Dunkin DonutsHOTELS: Days Inn, Super 8PET CARE, HEALTH & FITNESS, ENVIRONMENTPROS:CONS:Easy to set up & dissolveSole decisionmakerProfit taxed onceUnlimited liabilityLimited fundraising forexpansionEnds - retirement/death
PARTNERSHIPSExamples:Law Offices, Medical Practices, Ad AgenciesPROSPROS:CONS:CONS:SpecializeProfit taxed onceUnlimited liabilityDecisionmaking + complex
EXAMPLES:Microsoft, Petrobras, Nestle, VW, CarrefourPROS:Owners/stockholders-limited liabilityContinues if owners sell shares/dieAble to raise large amounts of $$$CONS:Double taxationComplicated to set up