Business Organizations Corporations, Mergers, and Multinationals Chapter 8 Section 3

Business Organizations Businesses often rely on investments to expand operations. One way is to increase investment in the form of a corporation. Corporations can grow even larger by combining with other corporations.

Business Organizations Corporation – a legal entity owned by individual stockholders. It is recognized as a separate legal entity. It has the rights of a “Natural Person” It can enter into contracts, sue and be sued, sell property, and etc.

Business Organizations Strengths of Corporations: 1. It is a Separate Legal Entity an artificial person under the law 2. Easy to Raise Capital The Corp can issue stocks – ownership in the corporation. The Corp can issue bonds – an IOU promise to repay the amount borrowed at a later date with interest.

Business Organizations Strengths of Corporations: 3. Best Management - The Corp can hire the best management team to run the company. - Stockholders do not run the company. - The Board of Directors is in charge of the company and they hire a team to run the company.

Business Organizations Strengths of Corporations: 4. Limited Liability This is the best part of a Corporation. Stockholders can only lose the amount they have invested in the corporation. Personal assets are not subject to payment of the corporation’s debts.

Business Organizations Strengths of Corporations: 5. Can Declare Bankruptcy Court can grant the Corporation permission not to pay some or all of their debts. 6. Unlimited Life This is a separate entity – it is not tied to anyone’s life. Someone dies, the corp. still goes on.

Business Organizations Strengths of Corporations: 7. Ease of Transferring Ownership All it takes is to either buy or sell stock in the corporation.

Business Organizations Weaknesses of Corporations: Difficult and Expensive to form You need to hire a lawyer to file the paperwork. You have to pay the state fees to incorporate. Have to have a Corporate Charter drawn up – it lists the specific number of stocks, dividends, and etc.

Business Organizations Weaknesses of Corporations: 2. Separation of ownership & management Owners have little control over the day- to-day operations of the corporation. Board of Directors run the business. Management Team runs the day- to-day operations of the corporation.

Business Organizations Weaknesses of Corporations: 3. Profits are taxed – TWICE First the Corporation’s income is taxed by the IRS (Internal Revenue Service). Then each person has to pay income taxes (dividends and capital gains taxes).

Business Organizations Weaknesses of Corporations: 4. Greater regulation by the government Securities and Exchange Commission (SEC) regulates the stock transactions. Other Gov’t. regulations may be in place for your corporation.

Business Organizations Corporation Combinations As corporations continue to grow managers and owners may decide it makes more sense to merge or combine, the firm, with another corporation. Each of the corporate combinations can lead to larger, more efficient firms. Often, larger firms can produce and sell their products at lower prices.

Business Organizations Types of Corporate Combinations: 1. Horizontal Mergers – joining of two or more firms competing in the same market. i.e. 1998 – Chrysler and Daimler-Benz merged into Daimler-Chrysler. Chase National Bank merged with Manhatten National Bank – produced Chase-Manhatten National Bank The resulting merger may gain monopoly power in its market.

Business Organizations Types of Corporate Combinations: 2. Vertical Mergers – joining of two or more firms involved in different stages of producing the same good or service. i.e. – United States Steel (US Steel) This merger may allow a firm to operate more efficiently. Antitrust regulators watch these industries.

Business Organizations Types of Corporate Combinations: 3. Conglomerates – a business combination merging more than three businesses that make unrelated products. i.e. – R.J. Reynolds owns Sea-Land Trucking, Delmonte Canning Company, Heublein Company i.e. Pepsi owns Taco Bell, Pizza Hut, and KFC Mitsubishi – Japan’s conglomerate – cars, electronics No one business earns the majority of the firm’s profits.

Business Organizations Multinational Corporations A large corporation that produces and sells its goods and services throughout the world. i.e. General Motors Company, Nike, Sony, McDonalds, and etc They are a citizen of many different countries and subject to pay taxes in each country they reside in, and subject to the laws of those countries.

Business Organizations They have the ability to move resources, goods, services, and financial capital across national borders.

Business Organizations Benefits of Multinationals: * They benefit consumers and workers worldwide by providing jobs and products around the world. * They spread new technologies and production methods across the globe. * Often the jobs help poorer countries and raise the standard of living for those nations.

Business Organizations Disadvantages of Multinationals They may unduly influence the culture and politics of those undeveloped nations. They pay low wages and have poor working conditions for the workers.