Ch. 8 Section 3 & 4 Corporations and Franchises Economics

Corporation Legal entity with an existence that is distinct from the people who organize, own, and run it 5 million corporations in U.S. Sales range from $100,000 to $499,999 20% of all businesses and 90% of all products

Forming a Corporation Very Complex Apply for a state license-articles of incorporation 6 pieces of information: name and purpose, address, method of fund raising, amount of money expected to raise, name and addresses of major corporate officers, length of time the corporation intends to exist

Types of Corporations Private Ownership is limited to a few people, only family members, shares are not publicly traded Mars, Meijer, Enterprise, Menard, Levi Strauss & Co

Publicly Traded Owned by many shareholders, shares sold publicly Nike, McDonalds, Microsoft, Apple, Aeropostale

Advantages Benefits for stockholders Limited liability Shareholder’s assets cannot be seized Flexibility Sell back stock

Disadvantages of Corporations Corporate charter expensive and difficult to obtain Attorney fees and filing expenses Government regulation Slow decision making process Double taxation

S Corporation Organization that offers limited liability combined with the single taxation of business income. Must have 75 stockholders with no foreign stockholders.

Corporations come in two flavors. C-corporations and S-corporations. S- corporations are like C-corporations, except they have some extra requirements placed upon them, such as limiting the number of shareholders and limiting who may be a shareholder. There's a big difference in how S- corporations and C-corporations are taxed. S-corporations allow small business owners the liability protection of incorporation, while at the same time preventing earnings paid as dividends from being taxed.

C corporations are subject to double taxation; that is, one tax at the corporate level on the corporation's net income, and another tax to the shareholders when the profits are distributed. S corporations have only one level of taxation. All of their income is allocated to the shareholders. However, C corporations have greater tax planning flexibility and can shield shareholders from direct tax liability. In addition, S corporations are subject to limitations, such as the number and type of shareholders they can have.

Limited Liability Company (LLC) Business w/limited liability for some owners Single Taxation NO ownership restrictions

LLC’s have certain characteristics of both a corporation and a partnership or sole proprietorship. corporationpartnershipsole proprietorship The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the advantage of single taxation.limited liability It is often more flexible than a corporation, and it is well-suited for companies with a single owner.

Limited Liability Partnership (LLP) Some partners have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence. partnershipscorporations Easily converted from an existing partnership

Mergers Horizontal Mergers 2 or more firms competing in the same market Daimler-Benz and Chrysler, Cingular and AT&T XM Radio and Sirus Vertical Mergers 2 or more firms involved in different stages of producing the same good or service Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS, and other programming Conglomerate Business combination merging more than 3 businesses that make unrelated products Walt Disney and ABC

Multinational Corporations (MNC’s) Large corporations that produces and sells its goods and services throughout the world Red Bull Sony American Express SunDisk Nike Nintendo McDonalds Walt Disney Company

Semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area Franchises

Advantages Management training and support Standardized quality National advertising program Financial assistance Centralized borrowing power

Disadvantages High franchising fees and royalties Strict operating schedule Purchasing restrictions Limited Product line