corporations & franchises lesson 4

The CORPORATE WORLD & FRANCHISES

Lesson 4, Section 3, page 142

We love PROFITS!

Sole Proprietors make all of it.

PARTNERSHIPS

Share PROFITS

Corporations

Share profits among thousands

WHY a CORPORATION ?

Business has grownWant to expand

Want to be more visibleWant the latest equipment

Charge less than competitorsGain market share

Don’t wantMore Partners

But need MONEY

LOOK for WHAT?FINANCIAL BACKERS

Use their $$$ while you run the business

That’s what a corporation is!

Owned by manyBy law is treated as though it were a person

Can own propertyCan pay taxes

Can sue & be suedCan make contracts, etc.

A separate & distinct existence

From stockholders who own its STOCK= share of corporation’s ownership,

entitling buyer to part of future profits & assets

Table 13 BUSINESS ORGANIZATIONS p.145Corporations = ___% of businesses

+ ___% of total business revenue19.9

88.8

Partnerships are __ % of businesses.7.1

Major advantage of corporationsLIMITED LIABILITY

IF corporation goes bankrupt or is sued, only the business loses money & assets,NOT the stockholders.

A MINUS – More taxes

Pros & Cons of CORPORATIONS• Profits & Losses• Liability• Management• Taxes• Personal

Satisfaction• Financing Growth• Life of the Business

Table 12 p. 144

Profits & LossesOwners OR _________Stockholders

DO NOT have to invest timeTO MAKE MONEY

LIABILITYis LIMITED

IF it goes bankrupt/is sued, normally creditors CANNOT take stockholders’ personal property to pay debts

MANAGEMENT + Responsibility is divided among manyDecisions made by trained peopleHandles big, complex operationsCarry on different business activities

MANAGEMENT

Disadvantages

Slow decisionmakingInterests differ

Management vs. Stockholders(= return on investment)

TAXESCorporate profits are taxed by:

1. the federal2. some state

3. some local governments.

SATISFACTION

+ Owning part of corporation- Little/No say in management

FINANCING GROWTH

Can use resources of investorsCan issue stock to raise capital

LIFE of the BUSINESS

Can go on forever IF

PROFITABLE

3 Things Founders MUST

DORegister with state (of headquarters)

Sell StockElect a Board of Directors

REGISTERING CORPORATIONSEvery state has laws, most are similar

Must file ARTICLES of INCORPORATION

DOCUMENT with info about corporation. Filed with state.

State grants a CORPORATE CHARTERIF articles of incorporation

conform with state laws

CORPORATE CHARTER

= license to operate

SELL STOCKSRaise funds for expansion

Sell COMMON or PREFERED STOCK

1.Partial ownership2. % of future profits (after preferred stockholders are paid)

3. Voting rights – annual stockholder meeting4. NO guarantee of dividend

COMMON STOCK

PREFERRED STOCK • Partial ownership

• CANNOT vote• GUARANTEED

Annual Dividend• IF corporation folds, holders have

1st claim on money after

creditors are paid

It gets BIG!

Stock may be traded in OTC market= Brokers buy & sell shares

Continues growth–may be sold on stock exchange

Naming the BOARD of DIRECTORS

STOCKHOLDERS elect board according to corporate BYLAWS at annual meeting

Rules of how stock is sold & dividends paid with list of company officers’ duties.

(Written after corporate charter is granted.

The BOARD supervises & controls

DOESN’T run daily businessHires officers-President, vice-president etc.

Figure 36 page 146

WHO reports to manufacturing V.P.?

French Fries?FRANCHISESHotels, gas stations, fast food chains

• Pay a fee + % of revenue• Gets help to set up business,

training, standards of business operations

Franchisee uses company’s name & sells its products

REVIEW

Table 14 p. 147 PROS & CONS Business Types

and examples

SOLE PROPRIETORSHIPEXAMPLES:FOOD: Subway, McDonald's, 7-Eleven, Dunkin' Donuts

HOTELS: Days Inn, Super 8 PET CARE, HEALTH & FITNESS, ENVIRONMENT

PROS:

CONS:

Easy to set up & dissolveSole decisionmakerProfit taxed once

Unlimited liabilityLimited fundraising for expansionEnds - retirement/death

PARTNERSHIPSExamples:

Law Offices, Medical Practices, Ad Agencies

PROS

PROS:CONS:

CONS:

SpecializeProfit taxed once

Unlimited liabilityDecisionmaking + complex

EXAMPLES: Microsoft, Petrobras, Nestle, VW, Carrefour

PROS:

Owners/stockholders-limited liabilityContinues if owners sell shares/dieAble to raise large amounts of $$$

CONS:Double taxationComplicated to set up

The CORPORATE WORLD & FRANCHISES

THE END of

UPCOMINGCompetition & Monopolies

Chapter 9