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

If a company does well and earns a profit, stockholders may receive dividends—part of the profit paid to stockholders

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

Private corporation: corporation that retains control over who can buy and sell the stock

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

Professional managers: CEOs, etc. are in charge of the corporation

Limited liability for debts/losses

Unlimited life: they continue to exist even after a change in ownership

Start-up cost and effort: expensive and lots of paperwork

Heavy regulations: stockholders meetings and annual reports

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

Horizontal merger: when 2 companies that produce the same product merge◦Example: car companies

Vertical merger: when 2 companies involved in different steps of marketing/producing a specific product merge

Conglomerate: the merger of companies that produce unrelated products

Multinational corporation: a large corporation with branches in several countries◦Example: General Electric

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

Proven/well-known productTraining in how to run the

business is givenFranchiser pays for advertising

Start-up costsSharing profits with franchiserMust follow franchisers’ rules

Cooperative: business operated for the shared benefit of its owner, who are also its customers

Examples: credit unions, producer’s co-ops, etc.

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

1. What are the benefits of forming a conglomerate?

2. In what ways might a vertical merger in the oil industry influence gas prices?

3. What would be the outcome of raising the fees and requiring more paperwork in order to start a corporation?

4. How is a franchise “an almost independent” business?