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The CORPORATE WORLD & FRANCHISES
Lesson 4, Section 3, page 142
We love PROFITS!
Sole Proprietors make all of it.
PARTNERSHIPS
Share PROFITS
Corporations
Share profits among thousands
WHY a CORPORATION ?
Business has grownWant to expand
Want to be more visibleWant the latest equipment
Charge less than competitorsGain market share
Don’t wantMore Partners
But need MONEY
LOOK for WHAT?FINANCIAL BACKERS
Use their $$$ while you run the business
That’s what a corporation is!
Owned by manyBy law is treated as though it were a person
Can own propertyCan pay taxes
Can sue & be suedCan make contracts, etc.
A separate & distinct existence
From stockholders who own its STOCK= share of corporation’s ownership,
entitling buyer to part of future profits & assets
Table 13 BUSINESS ORGANIZATIONS p.145Corporations = ___% of businesses
+ ___% of total business revenue19.9
88.8
Partnerships are __ % of businesses.7.1
Major advantage of corporationsLIMITED LIABILITY
IF corporation goes bankrupt or is sued, only the business loses money & assets,NOT the stockholders.
A MINUS – More taxes
Pros & Cons of CORPORATIONS• Profits & Losses• Liability• Management• Taxes• Personal
Satisfaction• Financing Growth• Life of the Business
Table 12 p. 144
Profits & LossesOwners OR _________Stockholders
DO NOT have to invest timeTO MAKE MONEY
LIABILITYis LIMITED
IF it goes bankrupt/is sued, normally creditors CANNOT take stockholders’ personal property to pay debts
MANAGEMENT + Responsibility is divided among manyDecisions made by trained peopleHandles big, complex operationsCarry on different business activities
MANAGEMENT
Disadvantages
Slow decisionmakingInterests differ
Management vs. Stockholders(= return on investment)
TAXESCorporate profits are taxed by:
1. the federal2. some state
3. some local governments.
SATISFACTION
+ Owning part of corporation- Little/No say in management
FINANCING GROWTH
Can use resources of investorsCan issue stock to raise capital
LIFE of the BUSINESS
Can go on forever IF
PROFITABLE
3 Things Founders MUST
DORegister with state (of headquarters)
Sell StockElect a Board of Directors
REGISTERING CORPORATIONSEvery state has laws, most are similar
Must file ARTICLES of INCORPORATION
DOCUMENT with info about corporation. Filed with state.
State grants a CORPORATE CHARTERIF articles of incorporation
conform with state laws
CORPORATE CHARTER
= license to operate
SELL STOCKSRaise funds for expansion
Sell COMMON or PREFERED STOCK
1.Partial ownership2. % of future profits (after preferred stockholders are paid)
3. Voting rights – annual stockholder meeting4. NO guarantee of dividend
COMMON STOCK
PREFERRED STOCK • Partial ownership
• CANNOT vote• GUARANTEED
Annual Dividend• IF corporation folds, holders have
1st claim on money after
creditors are paid
It gets BIG!
Stock may be traded in OTC market= Brokers buy & sell shares
Continues growth–may be sold on stock exchange
Naming the BOARD of DIRECTORS
STOCKHOLDERS elect board according to corporate BYLAWS at annual meeting
Rules of how stock is sold & dividends paid with list of company officers’ duties.
(Written after corporate charter is granted.
The BOARD supervises & controls
DOESN’T run daily businessHires officers-President, vice-president etc.
Figure 36 page 146
WHO 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 business operations
Franchisee uses company’s name & sells its products
REVIEW
Table 14 p. 147 PROS & CONS Business Types
and examples
SOLE PROPRIETORSHIPEXAMPLES:FOOD: Subway, McDonald's, 7-Eleven, Dunkin' Donuts
HOTELS: Days Inn, Super 8 PET CARE, HEALTH & FITNESS, ENVIRONMENT
PROS:
CONS:
Easy to set up & dissolveSole decisionmakerProfit taxed once
Unlimited liabilityLimited fundraising for expansionEnds - retirement/death
PARTNERSHIPSExamples:
Law Offices, Medical Practices, Ad Agencies
PROS
PROS:CONS:
CONS:
SpecializeProfit taxed once
Unlimited liabilityDecisionmaking + complex
EXAMPLES: Microsoft, Petrobras, Nestle, VW, Carrefour
PROS:
Owners/stockholders-limited liabilityContinues if owners sell shares/dieAble to raise large amounts of $$$
CONS:Double taxationComplicated to set up
The CORPORATE WORLD & FRANCHISES
THE END of
UPCOMINGCompetition & Monopolies
Chapter 9
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