corporations & franchises lesson 4

37
The CORPORATE WORLD & FRANCHISES Lesson 4, Section 3, page

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Page 1: Corporations & Franchises Lesson 4

The CORPORATE WORLD & FRANCHISES

Lesson 4, Section 3, page 142

Page 2: Corporations & Franchises Lesson 4

We love PROFITS!

Sole Proprietors make all of it.

Page 3: Corporations & Franchises Lesson 4

PARTNERSHIPS

Share PROFITS

Page 4: Corporations & Franchises Lesson 4

Corporations

Share profits among thousands

Page 5: Corporations & Franchises Lesson 4

WHY a CORPORATION ?

Page 6: Corporations & Franchises Lesson 4

Business has grownWant to expand

Want to be more visibleWant the latest equipment

Charge less than competitorsGain market share

Page 7: Corporations & Franchises Lesson 4

Don’t wantMore Partners

But need MONEY

Page 8: Corporations & Franchises Lesson 4

LOOK for WHAT?FINANCIAL BACKERS

Use their $$$ while you run the business

Page 9: Corporations & Franchises Lesson 4

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.

Page 10: Corporations & Franchises Lesson 4

A separate & distinct existence

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

entitling buyer to part of future profits & assets

Page 11: Corporations & Franchises Lesson 4

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

+ ___% of total business revenue19.9

88.8

Partnerships are __ % of businesses.7.1

Page 12: Corporations & Franchises Lesson 4

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

Page 13: Corporations & Franchises Lesson 4

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

Satisfaction• Financing Growth• Life of the Business

Table 12 p. 144

Page 14: Corporations & Franchises Lesson 4

Profits & LossesOwners OR _________Stockholders

DO NOT have to invest timeTO MAKE MONEY

Page 15: Corporations & Franchises Lesson 4

LIABILITYis LIMITED

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

Page 16: Corporations & Franchises Lesson 4

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

Page 17: Corporations & Franchises Lesson 4

MANAGEMENT

Disadvantages

Slow decisionmakingInterests differ

Management vs. Stockholders(= return on investment)

Page 18: Corporations & Franchises Lesson 4

TAXESCorporate profits are taxed by:

1. the federal2. some state

3. some local governments.

Page 19: Corporations & Franchises Lesson 4

SATISFACTION

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

Page 20: Corporations & Franchises Lesson 4

FINANCING GROWTH

Can use resources of investorsCan issue stock to raise capital

Page 21: Corporations & Franchises Lesson 4

LIFE of the BUSINESS

Can go on forever IF

PROFITABLE

Page 22: Corporations & Franchises Lesson 4

3 Things Founders MUST

DORegister with state (of headquarters)

Sell StockElect a Board of Directors

Page 23: Corporations & Franchises Lesson 4

REGISTERING CORPORATIONSEvery state has laws, most are similar

Must file ARTICLES of INCORPORATION

DOCUMENT with info about corporation. Filed with state.

Page 24: Corporations & Franchises Lesson 4

State grants a CORPORATE CHARTERIF articles of incorporation

conform with state laws

CORPORATE CHARTER

= license to operate

Page 25: Corporations & Franchises Lesson 4

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

Page 26: Corporations & Franchises Lesson 4

PREFERRED STOCK • Partial ownership

• CANNOT vote• GUARANTEED

Annual Dividend• IF corporation folds, holders have

1st claim on money after

creditors are paid

Page 27: Corporations & Franchises Lesson 4

It gets BIG!

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

Continues growth–may be sold on stock exchange

Page 28: Corporations & Franchises Lesson 4

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.

Page 29: Corporations & Franchises Lesson 4

The BOARD supervises & controls

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

Figure 36 page 146

WHO reports to manufacturing V.P.?

Page 30: Corporations & Franchises Lesson 4

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

Page 31: Corporations & Franchises Lesson 4

REVIEW

Table 14 p. 147 PROS & CONS Business Types

and examples

Page 32: Corporations & Franchises Lesson 4

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

Page 33: Corporations & Franchises Lesson 4

PARTNERSHIPSExamples:

Law Offices, Medical Practices, Ad Agencies

PROS

PROS:CONS:

CONS:

SpecializeProfit taxed once

Unlimited liabilityDecisionmaking + complex

Page 34: Corporations & Franchises Lesson 4

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

Page 35: Corporations & Franchises Lesson 4

The CORPORATE WORLD & FRANCHISES

THE END of

Page 36: Corporations & Franchises Lesson 4

UPCOMINGCompetition & Monopolies

Chapter 9

Page 37: Corporations & Franchises Lesson 4