corporation: business owned by stockholders these shareholders have limited liability for the...
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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
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If a company does well and earns a profit, stockholders may receive dividends—part of the profit paid to stockholders
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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
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Private corporation: corporation that retains control over who can buy and sell the stock
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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
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Professional managers: CEOs, etc. are in charge of the corporation
Limited liability for debts/losses
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Unlimited life: they continue to exist even after a change in ownership
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Start-up cost and effort: expensive and lots of paperwork
Heavy regulations: stockholders meetings and annual reports
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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
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Horizontal merger: when 2 companies that produce the same product merge◦Example: car companies
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Vertical merger: when 2 companies involved in different steps of marketing/producing a specific product merge
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Conglomerate: the merger of companies that produce unrelated products
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Multinational corporation: a large corporation with branches in several countries◦Example: General Electric
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Franchise: business made up of semi-independent businesses that offer the same products or services◦Example: McDonald’s
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Proven/well-known productTraining in how to run the
business is givenFranchiser pays for advertising
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Start-up costsSharing profits with franchiserMust follow franchisers’ rules
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Cooperative: business operated for the shared benefit of its owner, who are also its customers
Examples: credit unions, producer’s co-ops, etc.
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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
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1. What are the benefits of forming a conglomerate?
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2. In what ways might a vertical merger in the oil industry influence gas prices?
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3. What would be the outcome of raising the fees and requiring more paperwork in order to start a corporation?
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4. How is a franchise “an almost independent” business?