corporations & franchises lesson 4
TRANSCRIPT
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The CORPORATE WORLD & FRANCHISES
Lesson 4, Section 3, page 142
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We love PROFITS!
Sole Proprietors make all of it.
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PARTNERSHIPS
Share PROFITS
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Corporations
Share profits among thousands
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WHY a CORPORATION ?
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Business has grownWant to expand
Want to be more visibleWant the latest equipment
Charge less than competitorsGain market share
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Don’t wantMore Partners
But need MONEY
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LOOK for WHAT?FINANCIAL BACKERS
Use their $$$ while you run the business
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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.
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A separate & distinct existence
From stockholders who own its STOCK= share of corporation’s ownership,
entitling buyer to part of future profits & assets
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Table 13 BUSINESS ORGANIZATIONS p.145Corporations = ___% of businesses
+ ___% of total business revenue19.9
88.8
Partnerships are __ % of businesses.7.1
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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
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Pros & Cons of CORPORATIONS• Profits & Losses• Liability• Management• Taxes• Personal
Satisfaction• Financing Growth• Life of the Business
Table 12 p. 144
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Profits & LossesOwners OR _________Stockholders
DO NOT have to invest timeTO MAKE MONEY
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LIABILITYis LIMITED
IF it goes bankrupt/is sued, normally creditors CANNOT take stockholders’ personal property to pay debts
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MANAGEMENT + Responsibility is divided among manyDecisions made by trained peopleHandles big, complex operationsCarry on different business activities
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MANAGEMENT
Disadvantages
Slow decisionmakingInterests differ
Management vs. Stockholders(= return on investment)
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TAXESCorporate profits are taxed by:
1. the federal2. some state
3. some local governments.
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SATISFACTION
+ Owning part of corporation- Little/No say in management
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FINANCING GROWTH
Can use resources of investorsCan issue stock to raise capital
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LIFE of the BUSINESS
Can go on forever IF
PROFITABLE
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3 Things Founders MUST
DORegister with state (of headquarters)
Sell StockElect a Board of Directors
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REGISTERING CORPORATIONSEvery state has laws, most are similar
Must file ARTICLES of INCORPORATION
DOCUMENT with info about corporation. Filed with state.
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State grants a CORPORATE CHARTERIF articles of incorporation
conform with state laws
CORPORATE CHARTER
= license to operate
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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
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PREFERRED STOCK • Partial ownership
• CANNOT vote• GUARANTEED
Annual Dividend• IF corporation folds, holders have
1st claim on money after
creditors are paid
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It gets BIG!
Stock may be traded in OTC market= Brokers buy & sell shares
Continues growth–may be sold on stock exchange
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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.
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The BOARD supervises & controls
DOESN’T run daily businessHires officers-President, vice-president etc.
Figure 36 page 146
WHO reports to manufacturing V.P.?
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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
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REVIEW
Table 14 p. 147 PROS & CONS Business Types
and examples
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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
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PARTNERSHIPSExamples:
Law Offices, Medical Practices, Ad Agencies
PROS
PROS:CONS:
CONS:
SpecializeProfit taxed once
Unlimited liabilityDecisionmaking + complex
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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
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The CORPORATE WORLD & FRANCHISES
THE END of
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UPCOMINGCompetition & Monopolies
Chapter 9
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