CHAPTER 3 S.1 CORPORATIONS

Corporations

Most business transactions involve CORPORATIONS!

*Corporations: a firm of business organization recognized by law as a separate legal entity having all the rights of an individual.

Rights to buy/sell property Enter into legal contracts To sue or be sued

Question/Discussion

How are a Corporations rights different from either a sole proprietor, and partnerships rights?

A corporation is considered a legal entityIt must pay its debts, is responsible for itself,

and also must pay taxes. SPs and Partnerships do not have to do any of

the above.

How to Form a Corporation

It is a very formal, legal arrangement: 1. File for permission from National or State

government-you are applying to *incorporate (forming a corporation) your business.

2. If approved government grants a Charter: the document for approval of a corporation. This document specifies the number of shares of stock that can be sold to shareholders/stockholders

Stock/Shares: certificates of ownership sold to people/private investors.

Corporate Structure: rights of a stockholder-types of stock

Common stock: basic ownership of a corporation usually only one “vote” for each share of stock owned.

This vote is used to elect a *board of directors whose duty is it to direct the corporations business by setting broad policies and goals. SEE PAGE 60

The BofD hires a professional management team to run the business on a daily basis, like the CEO, president or CFO of a corporation.

Question/Discussion

When a firm incorporates does it have an endless amount shares? Yes or no?

Answer: NO - the charter gives them a limit.

Corporate Structure Continued

*Preferred stock: non-voting ownership of the corporation.

They receive dividends before common stock owners.

They DO NOT have right to elect representatives to the board of directors

Corporations can “name” their stock anything (Blue Stock, Green Stock, Class A, Class B, etc.)

MANAGEMENT OF A CORPORATION

Theory

A stockholder who owns a *majority of a corporations common stock can elect board members and control the company since they have more *votes

If the corporation is small they may elect him/herself or his/her family to the board of directors

*Proxy: stockholders can turn in their vote to representatives to cast their ballot for them.

STRENGTHS

1. Ease of raising *financial capital sell more stock!

2. Directors of a corporation can hire the best management available to run the firm.

3. Limited liability for the owners (stock holders) the corporation is its own entity that is responsible for its own debts and obligations (the corporation may be sued, but not stockholders)

Strengths Continued

4. *Unlimited Life business continues to exist even when ownership changes.

5. Ease of transferring ownership sell your stock!

Weaknesses

1. Difficulty and Expense of getting a charter depends on state, law firms, etc.

2. Owners/Shareholders have little say in *HOW the business is run. The BOARD makes those decisions.

3. Corporations pay income tax!

Weaknesses Continued

4. Subject to more government regulation:state registrationregistration with federal *Securities and

Exchange Commission if publicDisclose to public certain information about

sales/profitsmore government regulation if taking over

another business

Going Public

What does this mean?Privately held compared to Publicly traded

Privately Held Stock/Shares

Stock is not for sale to members of the general public

The person or people who started the business will own all shares of the corporation

Ex: Triangle Grill LLC – My family shares the ownership of the corporate stock; no outsiders; 6 siblings (52%,8%,8%,8%,%,8%)

Publicly Held Stock/Shares

Stock is for sale to anybody and everybody in market!!!!

http://www.cnbc.com/id/39801237

To BUY or not to BUY

IPO

Initial Public Offering: stock/share offering to employees, brokers, or investors who buy stocks/shares in BULK

Why in BULK?So they can re-sell to the public market! Thus

Selling stocks/shares to us!

THE RESEARCHRESEARCH CORPORATION

“GOOGLE IT”HTTP://WWW.GOOGLE.COM/INTL/EN/CORPORATE/

GGOOOOGGLLE

How Google Started

Google began in March 1996 as a research project by Larry Page and Sergey Brin, Ph.D. students at Stanford[1] working on the Stanford Digital Library Project (SDLP).

The SDLP's goal was “to develop the enabling technologies for a single, integrated and universal digital library" and was funded through the National Science Foundation among other federal agencies.

Larry Page & Sergey Brin

Background Information

The first funding for Google as a company was secured on August 1998 in the form of a $100,000

What is this contribution called? A Financial capital investment from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which didn't yet exist. The corporation was created in September 1998

What kind of firm was Google at first? A partnership June 7, 1999, a round of equity funding totaling $25

million was announced. Donors were venture capitalists. The company started selling ads in 2000.

In October 2003, while discussing a possible IPO (Initial Public Offering of shares), Microsoft approached the company about a possible partnership or merger. However, no such deal ever materialized.

Background Information Continued

In January 2004, Google announced the hiring of Morgan Stanley and Goldman Sachs Group to arrange an IPO.

The IPO was projected to raise as much as $4 billion.

What is Google Selling? Stock!!!

Google’s Initial IPO Continued

Google held a Dutch auction in which everyone who wanted a share put in a bid. The lowest successful bid became the price that everyone got their shares at, even if they bid a higher amount. This method guarantees that the initial offering price is set to sell all of the shares at a price that conservatively reflects market demand.

Google's initial price range for the stocks was between $108 and $135 per share, a fairly high amount that was meant to scare off speculators. Several problems with the IPO caused that price to drop, and by the time the Dutch auction had concluded, the official starting price was $85 per share.

http://money.howstuffworks.com/ipo7.htm

Google’s Initial IPO

Google filed their IPO July 26th, 2004, and raised $1.67 billion!!!

The share price increased more than $100 per share in the days after the IPO.

Google employees purchased shares for as little as $.30 per share

2010 Profit: $10.3 Million2011 Profit: $11.7 Million 2012 Profit: $13.8 Million http://money.howstuffworks.com/ipo7.htm

GOING PUBLIC

After the IPO, Google's stock price more than quadrupled!!!!

WHAT MADE THIS HAPPEN?

Going Public Continued

The two founders were said to hold almost 30% of the outstanding shares. The actual voting power of the insiders is much higher.

However, Google has a dual class stock structure in which each Class B share gets ten votes compared to each Class A share getting one.

Class A is publicly traded on the Nasdaq.

Google’s Current stock Prices

http://moneycentral.msn.com/investor/charts/chartdl.aspx?symbol=GOOG

Remember, at the IPO, stock was offered at between $108-$135, but actually sold at $85.

Was Google a good corporation in which to invest by purchasing stock?

Questions/Discussion

What is a benefit to being Corporate?

What is an IPO?What would a corporation “go public”?

How much does the Google stock cost now?