8-3: Corporations, Mergers, and Multinationals

1. 8-3: Corporations, Mergers, and Multinationals

2. 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

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 bonds • Bonds: 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 corporation • Limited 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 paperwork • Heavy 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 stockholders • Loss 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 merge • Example: car companies

13. Business Consolidation (continued) • Vertical merger: when 2 companies involved in different steps of marketing/producing a specific product merge

15. Business Consolidation (continued) • Conglomerate: the merger of companies that produce unrelated products

16. Business Consolidation (continued) • Multinational corporation: a large corporation with branches in several countries • Example: General Electric

18. 8-4: Franchises, Co-ops, and Nonprofits

19. Franchise • Franchise: business made up of semi-independent businesses that offer the same products or services • Example: McDonald’s

20. Advantages of Franchises • Proven/well-known product • Training in how to run the business is given • Franchiser pays for advertising

21. Disadvantages of Franchises • Start-up costs • Sharing profits with franchiser • Must follow franchisers’ rules

22. Cooperatives • Cooperative: business operated for the shared benefit of its owner, who are also its customers • Examples: 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 profit • Example: Habitat for Humanity

24. Questions • 1. 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?