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Essential Question:Essential Question:Describe what a corporation is, explain why

forming a corporation is considered difficult; compare and contrast common stock from preferred stock and explain the differences between stocks and bonds, and list advantages and disadvantages of corporations.

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What is a Corporation What is a Corporation (Characteristics)(Characteristics)A corporation is a business organization It is a legal entity which means it can own

property, hire/fire workers, and be sued Its ownership is divided into certificates

known as stock.This is the largest B.O. in terms of employees,

revenue, and money making ability.

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To form a corporation:To form a corporation:Submit an application for the articles of

incorporation and obtain a corporate charter.This takes time to get government approvalThe application fee is often substantialMany applications are rejected and require

re-submission (and a new fee)

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Information required by the articles Information required by the articles of incorporation:of incorporation: the name and purpose of the proposed corporation the address of the corporate headquarters the method of fundraising to be used by the

corporation (Stock, Private Investors, Bond- etc.) the amount of money the corporation expects to raise the names and addresses of the major corporate

officers

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Corporate structure:Corporate structure: Ownership by shareholders (stock owners) headed by a board of directors to make decisions-

BOD chosen by shareholder vote. run by corporate officers—CEO, president, vice

presidents, etc.—who carry out decisions made by the board

made up of department heads and other employees to perform day-to-day tasks

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What is stockWhat is stock Corporation gives itself a value based on business

projections and divides this value into certificates of ownership known as stock. It sells these certificates to raise money to fund operations.

Each certificate is called a share and starts with a specified value. If stock is the whole pizza, shares are the slices!

Once you own a share, you can sell it for profit if you choose

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Two types of Stock:Two types of Stock: Common Stock:

Allows shareholder to voice opinion in company affairs

Eligible to receive dividends Preferred Stock:

Doesn’t allow shareholders to participate in operations of company

Gets paid dividend before common stock

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Advantages/Disadvantages of owning Advantages/Disadvantages of owning stockstock A.) Stock is the easiest way to OWN part of a company

Requires only enough money to purchase a share Owners are not responsible for operations, decisions, and are

NOT liable

A.) Owners can resell shares for profit D.) Unless you own a significant number of shares,

you have little impact on the profits/loss of the company

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Corporate Bonds:Corporate Bonds:A certificate issued by the corporation in

exchange for money from investorDifferent because the bondholder does not

own part of companyWhen term of debt is up, bondholder is

repaid the loan (principal) plus interest

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Advantages of organizing a Advantages of organizing a corporation: corporation: limited liability- if company fails, personal

property is not involved separation of ownership from management-

allows for clinical thought- not emotionalease of raising capital- The better the company

does, the more investors are willing to invest. longevity

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Disadvantages of organizing a Disadvantages of organizing a corporation: corporation: costly and difficult to obtain a corporate charter number of government regulations to follow slow decision-making process- many people have

to review and be given opportunity to give input The larger the corporation, the more opportunity

for tension in terms of company goals, operations, and direction

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