CHAPTER 3 S.1 CORPORATIONS

Corporations Most business transactions involve CORPORATIONS! *Corporations : a firm of business organization recognized by law as a separate legal entity having all the rights of an individual.  Rights to buy/sell property  Enter into legal contracts  To sue or be sued

Question/Discussion How are a Corporations rights different from either a sole proprietor, and partnerships rights? A corporation is considered a legal entity It must pay its debts, is responsible for itself, and also must pay taxes. SPs and Partnerships do not have to do any of the above.

How to Form a Corporation It is a very formal, legal arrangement: 1. File for permission from National or State government- you are applying to *incorporate (forming a corporation) your business. 2. If approved government grants a Charter: the document for approval of a corporation. This document specifies the number of shares of stock that can be sold to shareholders/stockholders Stock/Shares: certificates of ownership sold to people/private investors.

Corporate Structure: rights of a stockholder-types of stock Common stock: basic ownership of a corporation  usually only one “vote” for each share of stock owned. This vote is used to elect a *board of directors whose duty is it to direct the corporations business by setting broad policies and goals. SEE PAGE 60 The BofD hires a professional management team to run the business on a daily basis, like the CEO, president or CFO of a corporation.

Question/Discussion When a firm incorporates does it have an endless amount shares? Yes or no? Answer: NO - the charter gives them a limit.

Corporate Structure Continued *Preferred stock: non-voting ownership of the corporation. They receive dividends before common stock owners. They DO NOT have right to elect representatives to the board of directors Corporations can “name” their stock anything (Blue Stock, Green Stock, Class A, Class B, etc.)

MANAGEMENT OF A CORPORATION

Theory A stockholder who owns a *majority of a corporations common stock can elect board members and control the company since they have more *votes If the corporation is small they may elect him/herself or his/her family to the board of directors *Proxy: stockholders can turn in their vote to representatives to cast their ballot for them.

STRENGTHS 1. Ease of raising *financial capital  sell more stock! 2. Directors of a corporation can hire the best management available to run the firm. 3. Limited liability for the owners (stock holders)  the corporation is its own entity that is responsible for its own debts and obligations (the corporation may be sued, but not stockholders)

Strengths Continued 4. *Unlimited Life  business continues to exist even when ownership changes. 5. Ease of transferring ownership  sell your stock!

Weaknesses 1. Difficulty and Expense of getting a charter  depends on state, law firms, etc. 2. Owners/Shareholders have little say in *HOW the business is run. The BOARD makes those decisions. 3. Corporations pay income tax!

Weaknesses Continued 4. Subject to more government regulation:  state registration  registration with federal *Securities and Exchange Commission if public  Disclose to public certain information about sales/profits  more government regulation if taking over another business

Going Public What does this mean? Privately held compared to Publicly traded

Privately Held Stock/Shares Stock is not for sale to members of the general public The person or people who started the business will own all shares of the corporation Ex: Triangle Grill LLC – My family shares the ownership of the corporate stock; no outsiders; 6 siblings (52%,8%,8%,8%,%,8%)

Publicly Held Stock/Shares Stock is for sale to anybody and everybody in market!!!! To BUY or not to BUY

IPO Initial Public Offering: stock/share offering to employees, brokers, or investors who buy stocks/shares in BULK Why in BULK? So they can re-sell to the public market! Thus Selling stocks/shares to us!

RESEARCH THE RESEARCH CORPORATION “GOOGLE IT”

How Google Started Google began in March 1996 as a research project by Larry Page and Sergey Brin, Ph.D. students at Stanford [1] working on the Stanford Digital Library Project (SDLP). Google Larry PageSergey BrinPh.D. Stanford [1]Stanford Digital Library Project The SDLP's goal was “to develop the enabling technologies for a single, integrated and universal digital library" and was funded through the National Science Foundation among other federal agencies.National Science Foundation

Larry Page & Sergey Brin

Background Information The first funding for Google as a company was secured on August 1998 in the form of a $100,000 What is this contribution called? A Financial capital investment from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which didn't yet exist. The corporation was created in September 1998 What kind of firm was Google at first? A partnership June 7, 1999, a round of equity funding totaling $25 million was announced. Donors were venture capitalists. The company started selling ads in In October 2003, while discussing a possible IPO (Initial Public Offering of shares), Microsoft approached the company about a possible partnership or merger. However, no such deal ever materialized.

Background Information Continued In January 2004, Google announced the hiring of Morgan Stanley and Goldman Sachs Group to arrange an IPO. The IPO was projected to raise as much as $4 billion. What is Google Selling? Stock!!!

Google’s Initial IPO Continued Google held a Dutch auction in which everyone who wanted a share put in a bid. The lowest successful bid became the price that everyone got their shares at, even if they bid a higher amount. This method guarantees that the initial offering price is set to sell all of the shares at a price that conservatively reflects market demand.Dutch auction Google's initial price range for the stocks was between $108 and $135 per share, a fairly high amount that was meant to scare off speculators. Several problems with the IPO caused that price to drop, and by the time the Dutch auction had concluded, the official starting price was $85 per share.

Google’s Initial IPO Google filed their IPO July 26th, 2004, and raised $1.67 billion!!! The share price increased more than $100 per share in the days after the IPO. Google employees purchased shares for as little as $.30 per share 2010 Profit: $10.3 Million 2011 Profit: $11.7 Million 2012 Profit: $13.8 Million

GOING PUBLIC After the IPO, Google's stock price more than quadrupled!!!! WHAT MADE THIS HAPPEN?

Going Public Continued The two founders were said to hold almost 30% of the outstanding shares. The actual voting power of the insiders is much higher. However, Google has a dual class stock structure in which each Class B share gets ten votes compared to each Class A share getting one. Class A is publicly traded on the Nasdaq.

Google’s Current stock Prices tdl.aspx?symbol=GOOG tdl.aspx?symbol=GOOG Remember, at the IPO, stock was offered at between $108-$135, but actually sold at $85. Was Google a good corporation in which to invest by purchasing stock?

Questions/Discussion What is a benefit to being Corporate? What is an IPO? What would a corporation “go public”? How much does the Google stock cost now?