Corporations

Review Advantages –Limited liability (risk) for owners –Lives on… –Can raise money for expansion Disadvantages –Double taxation Corporate tax Income tax –Complicated to establish, subject to complex laws all of a person’s assets are at risk if a business fails to pay it’s debts. Liability: all of a person’s assets are at risk if a business fails to pay it’s debts. Assets: anything of value that is owned

Steps to forming a Corporation 1.Promoters write up a prospectus and seek investors. 2.Articles of Incorporation must be submitted to the state for approval and registration. The state issues a charter. 3.An organizational meeting is held to select a Board of Directors and create the bylaws.

How do corporations raise money to finance the building or expansion of their business? They issue bonds a loan “issue debt” A company offers to sell a bond which it promises to redeem at face value at some future time. Each year they will pay interest to the buyer of the bond. Seller of Bond = Borrower Buyer of Bond = Lender They sell stocks A share of ownership –Share of the profits = dividend –Shares are traded in stock markets around the world.

Corporate Structure See text p. 150 and/or transparency

Role in U.S. Economy Sole Proprietorships –75% of businesses –6% total revenue Corporations –10-15 of businesses –89% total revenue Number of businesses Total Revenue