Understanding Corporations, Mergers, and Multinationals
Explore the characteristics of corporations, mergers, and multinationals in this lesson. Learn about stocks, dividends, limited liability, and the concept of double taxation in the corporate world. Understand the role of stockholders as partial owners and the implications of becoming a part of a corporation.
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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
Do Now Which partnership would you be a part of? Explain.
Unlike a sole proprietorship, a corporation is a business owned by stockholders.
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.
Each stockholder is a partial owner of the corporation.
Stocks When a business is incorporated, stocks are generally sold. By selling stocks, the corporation acquires capital. By buying stocks, individuals become partial owners of the corporation. The portion of corporate profits paid out to stockholders is a dividend.
By becoming a stockholder or partial owner of Burger King, the investor receives some of the corporation s profits.
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.
But dont forget trade-offs. While investors make dividends or their share of the profits, corporations experience double taxation.
Double Taxation Double taxation is one of the disadvantages of incorporation. Double taxation means that after corporations pay taxes on their profits, individual stockholders pay taxes on their dividends. Profits are taxed twice!
A multinational corporation (MNC) is a corporation that operates in different countries.
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.
The sale of stocks and bonds allow corporations to raise money.
A merger occurs when one business acquires another business. The government carefully monitors mergers.
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?
