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Unit 4 corporations

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Unit 4 corporations Unit 4 corporations Presentation Transcript

  • Corporate Forms of Business Ownership
  • Corporation
    • Business owned by a group of people and authorized by the state in which it is located to act as though it were a single person, separate from its owners
    • Must obtain a charter – sometimes called a certificate of incorporation
      • Official document obtained through the state which grants power to operate as a corporation
    • Somewhat like an artificial person
    • Can make contracts, borrow money, own property, and sue or be sued in its own name
    • Click here to learn more about the basics of a corporation
  • Stockholders
    • Sometimes called shareholders
    • Owners of a corporation
      • Buy share or shares (ownership divided into equal parts) to become a stockholder
    • Thousands of people can be stockholders
    • Receive a certificate from the corporation showing how many shares are owned
  • Basic Rights of a Stockholder
    • Transfer ownership to others
    • Vote for members of the ruling body of the corporation and other special matters considered by the stockholders
    • Receive dividends (profits that are distributed to stockholder on a per-share basis)
      • The decision to distribute dividends is made by the ruling body of the corporation
    • Buy more shares if they are available to purchase
    • Share in the net proceeds if the business goes out of business
      • This would be the cash received from selling all assets after paying all debts
  • Board of Directors
    • Sometimes called “directors” or the “board”
    • Ruling body of the corporation
    • Elected by the stockholders
    • Develop plans and policies to guide the corporation
    • Appoints officers to carry out the plans
    • Usually doesn’t play an active role in the company unless profits fall or there are other difficulties
    • Large firms – 10 to 25 directors
  • Officers and Forming a Corporation
    • Officers – top executives who are hired to manage the business
    • Appointed by the board of directors
    • Small corporations
      • President, secretary, and treasurer
    • Large corporations
      • May have vice presidents in different areas (ex. marketing, finance, and operations)
    • Titles are often shortened
      • Ex. CEO (chief executive officer) and CFO (chief financial officer)
    • In order to learn about what things need to be done to form a corporation, click here
  • Close and Open Corporations
    • Close corporation
      • Sometimes called a closely held corporation
      • Does not offer its shares of stock for public sale
      • Only a few stockholders, some may help run the business as partners would operate a business
      • Does not need financial activities disclosed to the public in most states
    • Open corporation
      • Sometimes called a publicly owned corporation
      • Offers its shares of stock for public sale
      • Prospectus – formal summary of the chief features of the business and its stock offering; must be furnished to each prospective buyer
  • Advantages and Disadvantages of a Corporation
    • Click here to learn more about the advantages of forming a corporation
    • Click here to learn more about the disadvantages of forming a corporation
  • Specialized Types of Organizations
    • Joint venture – agreement among two or more businesses to work together to provide a good or service
      • Even a sole proprietorship and a company could agree to work together; formation of business is not important
      • Ex. Two companies building a business development; each has different expertise
    • Virtual corporation – network of companies that form alliances among themselves as needed to take advantage of fast-changing conditions
      • More temporary than joint ventures
      • Ex. One company markets the goods, another provides the materials to make the goods, and a third manufactures the goods
  • Specialized Types of Organizations (cont’d)
    • Limited liability company – special type of corporation that is taxed as if it were a sole proprietorship or partnership
      • Referred to as a LLC, previously called a S corporation
      • Provides lower taxes and limited liability
      • Must meet certain eligibility rules
        • 35 stockholders or less
        • Business cannot own 80 percent or more of the stock of another corporation
        • No more than 25 percent of the corporation’s income can come from sources other than for the purpose(s) stated in the chart
        • All stockholders must be individuals who are permanent citizens or residents of the U.S.
      • Not a fit for large corporations or multinational firms, but many partnerships can benefit from becoming a LLC
  • Specialized Types of Organizations (cont’d)
    • Nonprofit corporation – organization that does not pay taxes and does not exist to make a profit
      • Ex. Schools, American Cancer Society
    • Quasi-public corporation – business that is important, but lacks the profit potential to attract private investors, and is often operated by local, state, or federal government
      • Ex. Fannie Mae (Federal National Mortgage Association) and Sallie Mae (Student Loan Marketing Association) – affordable loan programs
    • Cooperative – business owned and operated by its user-members for the purpose of supplying themselves with goods and services
      • Ex. Food cooperative where members can sell and buy food, goal is to keep prices low
  • Reference
    • Evarard, Kenneth E., Burrow, James L. (2001). Business Principles and Management. Mason, OH: South-Western.