Corporations Mergers and Multinationals Unit 8.3

Corporate Characteristics Corporations can be closely held (private), or publicly held entities. Corporations are owned by the stockholders of the company, have a legal identity, pay taxes, make contracts, and can sue and be sued. Control of the corporation is by the stockholders, who then hire a chief executive officer, and other officers to run the business. The holder of the most stock (or who votes the most stock through proxy) is called the chairman of the board. A proxy is where someone gives another person the ability to vote for them.

Corporations Advantages The main advantage is access to resources, especially raising money from stock sales or bonds. Among its advantages are limited liability for the stockholders, and the stock is easily transferable. It can also issue bonds, which are a kind of special I.O.U. that gains interest, to borrow money. Corporations are immortal

Corporations Disadvantages On the other hand, corporations are complex to and difficult to start up. A special charter must be granted, which specifies the amount of stock a corporation can issue. Corporations are also subject to additional regulations, and are taxed on their profit. This means that before stockholders get their share of the profits, it is taxed, then the stockholders themselves are taxed for personal income. This is seen as reasonable in most ways, though recently the taxation of dividend income has been reduced to 15%.

Corporate Combinations Horizontal Merger Horizontal mergers occur when two corporations making the same kind of product merge together to form a larger corporation. These kinds of mergers are strictly scrutinized to insure that this does not violate anti-trust laws and prevent reasonable competition. Vertical Merger Vertical mergers are when a corporation merges with or acquires businesses it is directly related with in the production or distribution of it’s goods. Conglomerates The last kind of merger forms what is called a conglomerate. This is where three or more unrelated businesses are merged together and none of them produces the majority of the profit. Conglomerates typically do not pose a problem with direct competition.

Corporate Ownership

Multinational (or Transnational) Corporations Multinational Corporations are corporations that conduct business in more than one country. Typically this means that there are factories, outlets, business offices, or other aspects of the business that are conducted in multiple countries at the same time. These are the largest types of corporations, and their sales often are larger than many third world countries.