Corporations

Review

•Advantages– Limited liability (risk)

for owners– Lives on…– Can raise money for

expansion

• Disadvantages– Double taxation

• Corporate tax• Income tax

– Complicated to establish, subject to complex laws

Liability: all of a person’s all of a person’s assets assets are at risk if a business are at risk if a business fails to pay it’s debts. fails to pay it’s debts.

Assets: anything of value that is owned

Steps to forming a Corporation

1. Promoters write up a prospectus and seek investors.

2. Articles of Incorporation must be submitted to the state for approval and registration. The state issues a charter.

3. An organizational meeting is held to select a Board of Directors and create the bylaws.

How do corporations raise money to finance the building or expansion of their business?

• They issue bonds• a loan• “issue debt”

A company offers to sell a bond which it promises to redeem at face value at some future time. Each year they will pay interest to the buyer of the bond.

Seller of Bond = Borrower

Buyer of Bond = Lender

• They sell stocks• A share of ownership

– Share of the profits = Share of the profits = dividend dividend

– Shares are traded in stock markets around the world.

Corporate Structure

Role in U.S. Economy

• Sole Proprietorships– 75% of businesses– 6% total revenue

• Corporations– 10-15 of businesses– 89% total revenue

SoleProp

Corp

Number of businesses

SoleProp

Corp

Total Revenue