Ch.+8.3


 * Ch. 8.3 Outline and questions #1-7**


 * Corporations**
 * the most complex form of business organization is the corporation
 * **Corporation-** a legal entity, or being, owned by individual stockholders, each of whom faces limited stability
 * **Stock**- a certificate of ownership in a corporation
 * corporations differ from sole proprietorships, which have no identity beyond that of the owners
 * corporations are defined as "entities" because it has a legal identity separate from those of its owners
 * they are treated like individuals, corporations pay taxes, may engage in business, make contracts, sue other parties, and get sued by others
 * Types of Corporations**
 * some corporations issue stock only to a few people, often family members
 * **Closely held corporations**- Stockholders that rarely trade their stocks, but pass it on within families
 * **Publicly help corporation**- Corporation that sells stock on the open market
 * Corporate Structure**
 * While the exact organization varies from firm to firm, all corporations have the same basic structure: Corporation owners, stockholders, board of directors that was elected(who make all the major decisions)
 * board of directors appoints corporate officers, who run the corporation and oversees production, they also hire managers and employees who work in various departments like finance, sales, research, marketing, and production
 * Advantages of Incorporation**
 * incorporation, or forming a corporation, offers advantages to both the individual owners, or stockholders, and the corporation itself
 * limited liability for powers
 * transferable ownership
 * ability to attract capital
 * long life
 * Advantages for stockholders**
 * the primary reason that entrepreneurs choose to incorporate, or form a corporation, is to gain the benefit of limited liability
 * individual investors do not carry responsibility for the corporations actions
 * they can lose only the amount of money they have invested into the business
 * Advantages for the corporation**
 * Corporations have more potential for growth than other business forms
 * by selling shares on the stock market, corporations can raise the money to purchase capital
 * A corporations can offer as many shares of stock as its corporate charter allows
 * **Bond**- A formal contract to repay borrowed money with interest at fixed intervals
 * because ownership is different from the running of the firm, corporation owners that is, stockholders do not need any special managerial skills
 * Disadvantages of Incorporation**
 * expense and difficulty of start up
 * double taxation
 * potential loss of control by the founders
 * more legal requirements and regulations
 * Difficulty and Expense of Start-up**
 * corporate charters can be difficult, expensive, and time consuming to establish
 * though most states allow people to form corporations without legal help, few experts recommend this cheaper shortcut
 * **Certificate of incorporation-** License to form a corporation issued by state government
 * the applications for a certificate of incorporation includes crucial information such as: the corporate name, statement purpose, length of time that the business will run (usually "for perpetuity", or without limit), founders' names and addresses, headquarters' business address, method of fund-raising, the rules for the corporations' management
 * Double Taxation**
 * the law considers corporations legal entities separate from their owners, therefore corporations must pay taxes on the income
 * **Dividends-** the portion of corporate profits paid out to stockholders
 * when stockholders sell their shares, they must pay a special tax called a capital gains tax, if they have made a profit
 * Loss of Control**
 * unlike the owner of a sole proprietorship, the original owner of a corporation often lose control of the company
 * managers and boards of directors, not owners, manage corporations
 * More Regulation**
 * Corporations also face more regulations than other kinds of business organizations
 * corporations must hold annual meetings for shareholders and keep careful records of all business transactions
 * publicly held corporations are required to file quarterly and annual reports the securities and exchange commission (SEC), they a federal agency that regulates the stock market
 * Corporate combinations**
 * as corporations grow, managers and owners may decide that it would make more sense to merge, or combine, the firm with another company or companies
 * this leads to more efficient firms, often larger firms can produce and sell their products at lower prices
 * Horizontal Mergers**
 * **Horizontal Mergers-** the combination of 2 or more firms competing in the same market with the same good or service (ex. 2 leading car companies merging)
 * Vertical Mergers**
 * **Vertical Mergers-** the combination of 2 or more firms involving in different stages of producing same good or service
 * Conglomerates**
 * **Conglomerates-** business combination merging more than 3 businesses that make unrelated products
 * Multinational Corporations**
 * **Multinational Corporations (MNC)-** Large corporations that produces and sells its goods throughout the world

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 * 1) In a sole proprietorship you must face the liability for business debt and in a corporation you have others to help you take on the debt or any other problem in the business
 * 2) The difference between a closely held corporation and a publicly held corporation is that closely does not sell stocks to anyone but family and publicly sells stock to anyone.
 * 3) Information required in a certificate of incorporation: the corporate name, statement purpose, length of time that the business will run (usually "for perpetuity", or without limit), founders' names and addresses, headquarters' business address, method of fund-raising, the rules for the corporations' management
 * 4) Stock is a certificate of ownership in a corporation
 * 5) Stockholders must pay taxes on dividends because they have made money on a stock.
 * 6) A merger is when 2 or more companies combine firms. **Conglomerates-** business combination merging more than 3 businesses that make unrelated products, **Horizontal Mergers-** the combination of 2 or more firms competing in the same market with the same good or service (ex. 2 leading car companies merging), **Vertical Mergers-** the combination of 2 or more firms involving in different stages of producing same good or service
 * 7) Some corporations are called multinational corporations because they sell their products all around the globe