Chapter 6 Corporate Forms of Business Ownership1

Chapter 6Corporate Forms of Business Ownership

©2008 Thomson/South-Western

Chapter 6 Corporate Forms of Business Ownership2

Partnership agreements

Chapter 6 Corporate Forms of Business Ownership3

Partnership agreement answers

Chapter 6 Corporate Forms of Business Ownership4

Lesson 6.1 Corporations

Goals Explain the basic structure of a corporation. Describe how a corporation is formed and

organized.

Chapter 6 Corporate Forms of Business Ownership5

Corporations

Corporation — business owned by a group of people and authorized by the state in which it is located to act as though it were a single person, separate from its owners

Chapter 6 Corporate Forms of Business Ownership6

Size of Corporations sales vs.

17 X Greater

16 X Greater

Chapter 6 Corporate Forms of Business Ownership7

Basic Features of a Corporation

Charter (certificate of incorporation) — official document through which a state grants the power to operate as a corporation

Stockholders — owners of the corporation

– Shares — equal parts of ownership– Dividends — profits distributed to

stockholders on a per-share basis

New Jersey Approved Corporation

Business Class, Inc.

New Jersey Approved Corporation

Business Class, Inc.

Chapter 6 Corporate Forms of Business Ownership8

Basic Features of a Corporation

Board of directors — ruling body of the corporation – ELECTED by Stockholders to plan and lead.

Officers — top executives hired by Board to manage the business, president, secretary, treasurer, CEO, CFO

Chapter 6 Corporate Forms of Business Ownership9

Formation of a Corporation

Prepare the certificate of incorporation1. Name the business

2. State the purpose of the business

3. Invest in the business

4. Pay incorporation costs

Operate the new corporation– Get organized Balance sheet, stock not money– Handle voting rights 1 stock = 1 vote

Chapter 6 Corporate Forms of Business Ownership10

Right of Stockholders

Chapter 6 Corporate Forms of Business Ownership11

Corporation advantages

Chapter 6 Corporate Forms of Business Ownership12

Corporate Disadvantages

Chapter 6 Corporate Forms of Business Ownership13

Stock voting example

Chapter 6 Corporate Forms of Business Ownership14

Lesson 6.2 Close and Open Corporations

Goals Distinguish between close and open

corporations. Explain the major advantages of the

corporate form of business. Explain the major disadvantages of the

corporate form of business.

Chapter 6 Corporate Forms of Business Ownership15

Close and Open Corporations

Close corporation Also called closely held corporation Does not offer shares of stock for public

sale Owned by just a few stockholdersOpen corporation Also called publicly owned corporation Offers shares of stock for public sale Has large number of stockholders

Chapter 6 Corporate Forms of Business Ownership16

Advantages and Disadvantages of Corporations

Advantages Available sources of

capital Limited liability of

stockholders Permanency of

existence Ease in transferring

ownership

Disadvantages Taxation Government

regulations and reports Stockholders’ records Charter restrictions

Chapter 6 Corporate Forms of Business Ownership17

What types of Businesses are suited to being Corporations?

Businesses that require a large amount of Capital i.e. hotels, Auto manufacturers etc.

Businesses with uncertain futures i.e. new magazine, amusement parks because of the risk involved

Chapter 6 Corporate Forms of Business Ownership18

Board of Directors of Nike

Mark G. Parker President and Chief Executive Officer of NIKE, Inc. John G. Connors Partner in a venture capital firm. Timothy D. Cook Chief Operating Officer of Apple Computer Jill K. Conway, Visiting scholar from MIT in science, technology and society. Ralph D. DeNuzion, age 72, President of an investment firm Alan B. Graf Executive Vice President and Chief Financial Officer of

FedEx. Douglas G. Houser Partner in the Portland, Oregon law firm Jeanne P. Jackson Founder and chief executive officer of MSP Capital, a

private investment company. Ms. Jackson was chief executive officer of Walmart.com from March 2000 to January 2002. She was with Gap, Inc., as president and chief executive officer of Banana Republic. She has held various retail management positions with Victoria’s Secret, The Walt Disney Company, Saks Fifth Avenue and Federated Department Stores. Ms. Jackson is a trustee of the United States Ski and Snowboard Team and serves on the board of advisors of the Harvard Graduate School of Business. She is also a director of McDonald’s, Nordstrom and Williams-Sonoma.

Chapter 6 Corporate Forms of Business Ownership19

Questions

A corporation that does not offer its stock to the public for sale is a(n)

Close Corporation Open Corporation Private Corporation None of the above.

Chapter 6 Corporate Forms of Business Ownership20

Questions

The advantages of a corporate form of ownership include all of the following except

Double taxation Available sources of capital Limited liability Permanency of existence

Chapter 6 Corporate Forms of Business Ownership21

Lesson 6.3 Specialized Types of Organizations

Goals Describe organizations that are specialized

alliances between companies or individuals. Describe specialized forms of corporations

formed for tax or nonprofit reasons.

Chapter 6 Corporate Forms of Business Ownership22

Organizational Alliances

Joint venture — agreement among two or more businesses to work together to provide a good or service.

Example: NUMMI AutoAlliance Ford and Mazda Sony-Ericsson, Baseball Network (ABC, NBC and Major League Baseball)

Verizon Wireless (Verizon and Vodafone)

XFL – NBC and World Wresting Entertainment

Chapter 6 Corporate Forms of Business Ownership23

Organizational Alliances

Virtual corporation — network of companies that form alliances among themselves as needed to take advantage of fast-changing market conditions

Chapter 6 Corporate Forms of Business Ownership24

Virtual Corporation

A. Wants to sell a specialized computer.

B. Has some parts needed

C. Has some additional parts needed.

D. Knows people who could use the computer.

Chapter 6 Corporate Forms of Business Ownership25

Cooperatives

Cooperative — business owned and operated by user-members for the purpose of supplying themselves with goods and services

Chapter 6 Corporate Forms of Business Ownership26

Other Limited Liability Corporations

Limited liability company (LLC) or Subchapter S corporation — special type of corporation allowed that is taxed as if it were a sole proprietorship or partnership

_ Less than 100 stockholders– Domestic company and no Non-resident aliens as

stockholders– Only one class of stock, NO DOUBLE TAXATION

Chapter 6 Corporate Forms of Business Ownership27

Other Limited Liability Corporations

Nonprofit corporation — organization that does not pay taxes and does not exist to make a profit ELKS, Masons, Local Hospitals, Girl Scouts.

Quasi-public corporation — business that is important to society, lacks profit potential, and is often run by local, state, or federal government Turnpike, water and sewer