Chapter 6 Corporate Forms of Business Ownership Corporations Basic Features of a Corporation Formation of Corporations Closed and Open Corporations Specialized Types of Organizations

Corporations Corporations are small in number but large in size Corporations employ millions of people and provide consumers with goods and services that they need and want. Corporation - business owned by a group of people and authorized by the state (charter) to act as though it were a single person. A corporation can make contracts, borrow money, own property, sue and be sued.

Formation of Corporations Certificate of Incorporation Name the Business State the Purpose of the Business Invest in the business - Capital Stock Pay Incorporation Costs/Fees There are three key types of people in corporations: Stockholders Directors Officers

Stockholders Stockholders are the owners of the corporation. Ownership is divided into equal parts called shares. Thousands can own the corporation Rights of Stockholders - To Transfer Ownership to Others To vote for members of the ruling body To receive dividends To buy new shares of stock To share in the net proceeds There is no liability beyond the extent of the stockholder’s ownership. If the corporation fails they will only lose the amount invested. (limited liability)

Ruling Body of Corporations Directors or Board of Directors - is the ruling body of the corporation. Board members are elected by the stockholders. Often the BOD are the stockholders which own many shares of stock. Usually about 10 to 25 members a few are usually top execs from the company. College professors, and executives from other companies usually are appointed because of their vast knowledge.

Officers Officers - are the top executives who are hired to manage the business. They are appointed by the BOD. The titles are usually: CEO, Chief Executive Officer COO, Chief Operating Officer CFO, Chief Financial Officer CIO, Chief Information Officer

Close vs. Open Corporations Close Corporation - (a.k.a.. Closely Held Corporation) - is one that does not offer its shares of stock for public sale. The partners of the business own and operate the business. These businesses do not need to make their financials public. Open Corporation - (a.k.a. Publicly Owned Corporation) is one that offers its shares of stock for public sale. This type of corporation can raise large amounts of capital. Must provide stockholders with Financial Statements.

Advantages of Corporations Available Sources of Capital Limited Liability of Stockholders Permanency of Existence Ease in Transferring Ownership

Disadvantages of Corporations Double Taxation Government Regulations & Reports Extensive Record Keeping Stockholders Records Charter Restrictions

Specialized Types of Organizations Joint Ventures - an agreement involving two or more businesses to make/sell a good or service. Virtual Corporation – forming temporary alliances to take advantage of fast-changing market conditions. Limited Liability Companies – taxed as sole proprietorships, limited liability however, certain rules apply. No more than 35 shareholders etc.. See rules on page 155.

Specialized Types of Organizations (cont.’...) Non-Profit Organizations - an organization that does not pay taxes and does not exist to make a profit. They do not pay dividends to stockholders (Boy Scouts, United Way, Hospitals) Quasi-Public Corporations – a business that is important to society but does not have the funds to attract investors may be run by the local, state or federal government (Water & Sewer Systems)