Corporations, Mergers, and Multinationals

1. Corporations, Mergers, and Multinationals In this lesson, students will be able to identify characteristics of corporations, mergers, and multinationals. Students will be able to identify and/or define the following terms: Corporation Stocks Dividends Mergers Bonds Multinational Corporation E. Napp

2. Unlike a sole proprietorship, a corporation is a business owned by stockholders. E. Napp

3. Corporation • A CORPORATION IS A LEGAL ENTITY OWNED BY INDIVIDUAL STOCKHOLDERS. • A corporation is considered a separate entity apart from its owners. • As such, the corporation can be sued but individual stockholders cannot be sued. • But who collects profits, makes the decisions? E. Napp

4. Corporation • A CORPORATION IS A LEGAL ENTITY OWNED BY INDIVIDUAL STOCKHOLDERS. • Ownership “share” based on percentage: • How many shares have been issued? • Depends on the Initial Public Offering, any splits. • How many shares do you own? E. Napp

5. Corporation • Example: • How many shares have been issued? • Depends on the Initial Public Offering, any splits. • During IPO, “Helf Coffee Inc” sells 2,000 shares at $15 per share • How many shares do you own? You invest $7500 (buys 500 shares). You own ¼ of the company. E. Napp

6. Corporation • Example (continued): • You invest $7500 (buying 500 shares). • You own ¼ of the company. • Mr. Helf kept 1000 shares (He owns ½) • Next year, after all expenses are paid, “Helf Coffee Inc” makes $800 profit- • Paid out in dividends: $.40 per share. • Mr. Helf gets ½: $400 • You get ¼: $200 • The other $200 paid to other share holders, .40/share E. Napp

7. Each stockholder is a partial owner of the corporation. E. Napp

8. Stocks • When a business is incorporated, stocks are generally sold. • BY SELLING STOCKS, THE CORPORATION ACQUIRES CAPITAL. (IPO) • By buying stocks, individuals become partial owners of the corporation. E. Napp

9. By becoming a stockholder or partial owner of Burger King, the investor receives some of the corporation’s profits. E. Napp

10. Limited Liability • However, it is important to remember that a corporation is a separate entity apart from its owners. • Therefore, the stockholder has limited liability. • He can only lose his investment. E. Napp

11. But don’t forget trade-offs. While investors make dividends or their share of the profits, corporations experience double taxation. E. Napp

12. Double Taxation • DOUBLE TAXATION IS ONE OF THE DISADVANTAGES OF INCORPORATION. • Corporations pay taxes on their profits • (Corporate Income Tax- 21% flat rate; 2017) • Individual stockholders pay taxes on dividends. • Profits are taxed twice! E. Napp/Helf

13. A multinational corporation (MNC) is a corporation that operates in different countries. E. Napp

14. Raising Money • Corporations raise money by selling stocks or bonds. • Remember the investment poem: Stocks, you own Bonds, you loan • When a person buys stock, he becomes a partial owner. • WHEN HE BUYS BONDS, HE LOANS MONEY TO THE CORPORATION AND MUST BE REPAID. E. Napp

15. Advantages of Corporations • PROTECTS FROM LIABILITY • SELLING STOCKS AND BONDS HELPS TO RAISE MONEY • Unlimited life E. Napp/Helf

16. Disadvantages of Corporations • DOUBLE TAXATIONS • LOTS OF REGULATIONS AND PAPERWORK • Loss of control E. Napp/Helf

17. Limited Liability Corporation • COMBINES SOLE PROPRIETORSHIP WITH CORPORATIONS • ALLOWS SMALL BUSINESSES TO CREATE LEGAL, LIABLE BUSINESS ENTITY: AVOIDS UNLIMITED LIABILITY • Avoids most double taxation • Requires some paperwork, not many regulations E. Napp

18. The sale of stocks and bonds allow corporations to raise money. E. Napp

19. A merger occurs when one business acquires another business. The government carefully monitors mergers. E. Napp

20. Questions for Reflection: • How does a person become a stockholder and why would a person want to become a stockholder? • What are the advantages and disadvantages of incorporation? • How does a corporation become a multinational corporation? • Why does the government monitor mergers? E. Napp