Lesson: Chapter 8 section 3Lesson: Chapter 8 section 3

By:Christen RomeroBy:Christen RomeroOsvaldo FernandezOsvaldo Fernandez

Adrian SantosAdrian Santos

Bell Ringer• What do you feel a corporation is ?

VocabularyVocabulary

Advantages of Advantages of IncorporationIncorporation

Incorporation, or forming a corporation, Incorporation, or forming a corporation, offers advantages to both the offers advantages to both the individual owners, or stockholders, and individual owners, or stockholders, and to the corporation itself. Which includeto the corporation itself. Which include

Limited liability for ownersLimited liability for owners Transferable ownershipTransferable ownership Ability to attract capitalAbility to attract capital Long lifeLong life

Disadvantages of Disadvantages of IncorporationIncorporation

Corporations are not without their Corporations are not without their disadvantages:disadvantages:

Expense and difficulty of start upExpense and difficulty of start up Double taxationDouble taxation Potential loss of control by the Potential loss of control by the

foundersfounders More legal requirements and More legal requirements and

regulationsregulations

Difficulty and Expense Difficulty and Expense of Start-Upof Start-UpFirms that wish to incorporate must first file for a state license Firms that wish to incorporate must first file for a state license

known as a certificate of incorporation, or corporate known as a certificate of incorporation, or corporate character. The application includes crucial information such character. The application includes crucial information such asas

The corporate nameThe corporate name Statement of purposeStatement of purpose Length of time that the business will run (usually “for Length of time that the business will run (usually “for

perpetuity” or without limit)perpetuity” or without limit) Founders’ names and addresses Founders’ names and addresses Headquarters’ business addressHeadquarters’ business address Method of fund raisingMethod of fund raising The rules for the corporation’s managementThe rules for the corporation’s management

Once state officials review and approve the application, they Once state officials review and approve the application, they grant a corporate charter. Then the corporation may grant a corporate charter. Then the corporation may organize itself to produce and sell a good or service.organize itself to produce and sell a good or service.

Double TaxationDouble Taxation

The law considers corporations legal The law considers corporations legal entities separate from their owners. entities separate from their owners. Corporations, therefore, must pay Corporations, therefore, must pay taxes on their income. Profit is a form taxes on their income. Profit is a form of income. When stockholders receive of income. When stockholders receive income from the corporation in the income from the corporation in the form of dividends-the portion of form of dividends-the portion of corporate profits paid out to corporate profits paid out to stockholders- the stockholders must stockholders- the stockholders must pay personal income tax on those pay personal income tax on those dividends. This double taxation keeps dividends. This double taxation keeps firms from incorporating.firms from incorporating.

Quiz for Chapter 8 Section 3 

1. Describe what a corporation is? 

2. In your own words what do you think a bond does?  

3. Why is a certificate of incorporation significant for a corporation?  

4. Compare and Contrast a closely held corporation and publicly held corporation.  

5. How would you create a corporation?  

6. What do you think of a multinational corporation?

7. Explain the difference between horizontal and vertical mergers.

8. What information is required in a certificate of incorporation?

9.Why must a tax holders pay taxes on dividends?

10.Why are corporations called multinational corporations?