1. 8-3: Corporations, Mergers, and Multinationals

2. Characteristics of Corporations
Corporation: business owned by stockholders
These shareholders have limited liability for the company’s debts and losses
They acquire ownership through the purchase of stock—shares of ownership in the corporation

3. Characteristics of Corporations (continued)
If a company does well and earns a profit, stockholders may receive dividends—part of the profit paid to stockholders

5. Characteristics of Corporations (continued)
Corporations make up 20% of all businesses in the U.S.
Public corporation: a corporation that issues stock that can be freely bought and sold

6. Characteristics of Corporations (continued)
Private corporation: corporation that retains control over who can buy and sell the stock

7. Advantages of Corporations
Access to resources: Easy to raise money through the sale of stocks and bonds
Bonds: a contract issued by a corporation that promises to repay borrowed money plus interest, on a fixed schedule

8. Advantages of Corporations (continued)
Professional managers: CEOs, etc. are in charge of the corporation
Limited liability for debts/losses

9. Advantages of Corporations (continued)
Unlimited life: they continue to exist even after a change in ownership

10. Disadvantages of Corporations
Start-up cost and effort: expensive and lots of paperwork
Heavy regulations: stockholders meetings and annual reports

11. Disadvantages of Corporations (continued)
Double taxation: must pay taxes on profits and on dividends—the corporate profits paid to stockholders
Loss of control: some control may be lost to the board of directors

12. Business Consolidation
Horizontal merger: when 2 companies that produce the same product merge
Example: car companies

13. Business Consolidation (continued)
Vertical merger: when 2 companies involved in different steps of marketing/producing a specific product merge

15. Business Consolidation (continued)
Conglomerate: the merger of companies that produce unrelated products

16. Business Consolidation (continued)
Multinational corporation: a large corporation with branches in several countries
Example: General Electric

18. 8-4: Franchises, Co-ops, and Nonprofits

19. Franchise
Franchise: business made up of semi-independent businesses that offer the same products or services
Example: McDonald’s

20. Advantages of Franchises
Proven/well-known product
Training in how to run the business is given
Franchiser pays for advertising

21. Disadvantages of Franchises
Start-up costs
Sharing profits with franchiser
Must follow franchisers’ rules

22. Examples: credit unions, producer’s co-ops, etc.
Cooperatives
Cooperative: business operated for the shared benefit of its owner, who are also its customers
Examples: credit unions, producer’s co-ops, etc.

23. Nonprofit Organization
Nonprofit organization: institution that acts like a business organization but its purpose is to benefit society not to make a profit
Example: Habitat for Humanity

24. Questions
1. What are the benefits of forming a conglomerate?

25. 2. In what ways might a vertical merger in the oil industry influence gas prices?

26. 3. What would be the outcome of raising the fees and requiring more paperwork in order to start a corporation?

27. 4. How is a franchise “an almost independent” business?