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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:

CorporationStocks

DividendsMergers

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Unlike a sole proprietorship, a corporationis a business owned by stockholders.

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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.

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Each stockholder is a partial ownerof the corporation.

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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.

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By becominga stockholder

or partial ownerof Burger King,

the investorreceives some

of the corporation’s

profits.

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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.

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But don’t forget trade-offs. Whileinvestors make dividends or theirshare of the profits, corporations

experience double taxation.

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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!

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A multinational corporation (MNC) isa corporation that operates in

different countries.

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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.

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The sale of stocks and bonds allowcorporations to raise money.

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A merger occurs when one businessacquires another business. The

government carefully monitors mergers.

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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?