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Corporate Forms of Business Ownership

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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

				
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