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Corporate Forms of Business Ownership Chapter 6 Objectives • Explain the basic features of a corporation • Describe how a corporation is formed & organized • List some of the major advantages & disadvantages of the corporate form of business • Describe several specialized forms of business organizations Corporations • Generally few in number, but large in size • Sales were over 17 times more than proprietorships • Sales were over 16 times more than partnerships • Plays a vital role in business • Examples – K-mart, Ford, Compaq Basic Features • Corporation – Business owned by a group of people & authorized by the state to act as a single person, separate from its owners • Charter (Certificate of Incorporation) – Official document through which a state grants the power to operate as a corporation • 3 Key People – Stockholders, directors, & officers Stockholders • Stockholders are the owners of a corporation • Ownership is divided into equal parts – Shares • A person who buys a share is a stockholder Basic Stockholder Rights 1. Transfer ownership to others 2. Vote for members of the ruling body of the corporation 3. Receive dividends • Profits distributed to stockholders on a per-share basis 4. Buy new shares of stock 5. Share in the net proceeds if the co. goes out of business Directors • Also known as the Board of Directors – Ruling body of the corporation who are elected by the stockholders – Develop plans, policies, guidelines, and appoint officers to carry these out – Generally 10-25 in large corporations – Generally stockholders who own a lot of shares, but do not have to own stock Officers • Top executives who are hired to manage the business – Very top executive is often the CEO • Appointed by the Board of Directors • Often consists of a president, secretary, & a treasurer Formation of Corporations 1. Preparing the Certificate of Incorporation • Naming the Business • Stating the Purpose of the Business • Investing in the Business • Capital Stock (stock)- shares of ownership • Paying Incorporation Taxes Formation of Corporations 2. Operating the New Corporation • Getting Organized • Prepare a Balance Sheet • Handling Voting Rights • Proxy- written authorization for someone to vote on behalf of the person signing the proxy Close Corporation • Also known as a Closely-Held Corporation • Does not offer its shares of stocks for public sale • Does not have to make financial activities known to the public • Does have to prepare reports for the state for tax purposes Open Corporation • Also known as a Publicly Owned Corporation • Offers its shares of stock to the public for sale • Must issue a registration statement with the SEC called a Prospectus – States the intention to sell shares of stock & features of the business • Often have a large number of stockholders Advantages of Corporations • Available Sources of Capital • Limited Liability of Stockholders • Permanency of Existence • Ease in Transferring Ownership Disadvantages of Corporations • Taxation • Government Regulations & Reports • Stockholders’ Records • Charter Restrictions Who Is Suited to be a Corporation? • Businesses that require a LARGE amount of CAPITAL. • Businesses that may have UNCERTAIN FUTURES Specialized Corporations: Joint Venture • Agreement among 2 or more businesses to work together to provide a good or service • Often include ventures with foreign countries – Ford & Mazda pg. 152 • More capital & expertise provided by each company Specialized Corporations: Virtual Corporation • A more fluid form of the joint venture • A network of companies that form alliances to take advantage of fast-changing market conditions – Puma Shoe Company pg. 152-153 • Usually more temporary than a joint venture • Web-based firms are good candidates Specialized Corporations: Limited Liability Company (LLC) • Special corporation taxed as a sole proprietorship or partnership • Usually attracts small, growing partnerships • Advantages – Limited Liability – Lower Taxes • Regulations – No more than 35 workers – Cannot own 80% of another company’s stock – No more than 25% of income can come from another source – All stockholders must be permanent residents of the U.S. Specialized Corporations: Nonprofit • Organization that does not pay taxes and does not exist to make a profit – Private schools, local hospitals, United Way, SAT • Does not pay dividends to stockholders • Provide nearly 1/3 of the GDP Specialized Corporations: Quasi- Public • Business important to society but does not attract private investors • Run by government financial support known as a subsidy and the govt. imposes regulatory controls – Tennessee Valley Authority – Water and sewer systems, parking garages Specialized Corporations: Cooperatives • Business owned & operated by its user-members for the purpose of supplying themselves with goods & services • Join cooperatives by purchasing shares of stock • Members share advantages of cost & profit – Farmers, credit unions, insurance firms, apartments
"Corporate Forms of Business Ownership"