Business OrganizationsSections 3 & 4

Corporations, Mergers, and MultinationalsSection 3

Corporations

A Corporation is a legal entity owned by individual stockholders. › Stock is a certificate of ownership in a

corporation.

Types of Corporations

Closely held corporation is a corporation that issues stock to only a few people, often family.

Types of Corporations

Publicly held corporation is a corporation that sells stock on the open market.

Types of Corporations

Publicly held corporation have many stockholders, are sold in places like New York Stock Exchange.

Corporate Structure

•Owners / Stockholders•They elect a board of directors

•Board of directors •Make all major decisions for corporation, including hiring officers who run corporation.

•Corporate officers then hire management and employees. •These people work in various departments.

Advantages of Incorporation

1. Limited liability for owners2. Transferable ownership3. Ability to attract capital4. Long life

Advantages for Stockholders

Limited liability Flexibility Transferable

Advantages for the Corporation

More potential for growth Raise money for capital

› Selling stock or bonds Do not need managerial skills

Disadvantages of Incorporations

1. Expense and difficulty of start-up2. Double taxation3. Potential loss of control by the

founders4. More legal requirements and

regulations

Disadvantages of Incorporations

Difficulty and expense of start-up

Must get certificate of incorporation which is a license to form a corporation issued by a state government.

Disadvantages of Incorporations

Double Taxation› Corporations are considered separate legal

entities from their owners, so therefore they must pay taxes on their income and stockholders must also pay taxes on their income.

Disadvantages of Incorporations

Loss of Control More Regulation

› Annual reports to Securities and Exchange Commission (SEC), stock market regulators.

Corporate Combinations

Horizontal Mergers Vertical Mergers Conglomerates

Horizontal Mergers

The combination of two or more firms competing in the same market with the same good or service.

Vertical Mergers The combination of two or more firms

involved in different stages of producing the same good or service.

Conglomerates

Business combination merging more than three businesses that make unrelated products.

Multinational Corporations

Large corporation that produces and sells its goods and services throughout the world. › Must obey laws and taxes where they are

located

Advantages and Disadvantages

Providing jobs worldwide, spread new technologies.

Influence culture and politics in countries, poor working conditions.

OTHER ORGANIZATIONS

Section 4

Business Franchises

A semi-independent business that pays fees to a parent company in return for exclusive right to sell a certain product or service in a given area.

Advantages of Franchises

1. Management training and support2. Standardized quality3. National advertising programs4. Financial assistance5. Centralized buying power

Disadvantages of franchises

1. High franchising fees and royalties, a share of earnings given as payment.

2. Strict operating standards3. Purchasing restrictions4. Limited product line

Cooperative organizations

A cooperative is a business organization owned and operated by a group of individuals for their mutual benefit.

Consumer Cooperative

Retail outlet owned and operated by customers. › Some require work, some require fees.

Service Cooperatives

Cooperatives that provide service instead of goods. › Discounted insurance, banking services,

health care, legal help, or baby sitting.

Producer Cooperatives

Agricultural marketing cooperatives that helps members sell their products

Nonprofit Organizations

Institution that functions much like a business, but does not operate for the purpose of generating profits› Museums, YMCA, Boys and Girls Clubs,

public schools.

Professional Organizations

Nonprofit organization that works to improve the image, working conditions, and skill levels of people in particular occupations.

Business Associations Nonprofit organization that promotes

collective business interests for a city, state, or other geographical area, or for a group of similar businesses.

Trade Associations

Nonprofit organization that promotes the interests of a particular industry.

Labor Unions An organized group of workers whose

aim is to improve working conditions, wages, hours, and fringe benefits.