Section 3 Corporations, Mergers, and Multinationals

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Objectives

After studying this section you will be able to:

1. Explain the characteristics of corporations.
2. Analyze the advantages of incorporation.
3. Analyze the disadvantages of incorporation.
4. Compare and contrast corporate combinations.
5. Describe the role of multinational corporations.

Section Focus

Corporations are complex business organizations that can be combined to form even larger businesses. Some corporate enterprises span the globe.

Key Terms

• corporation
• stock
• closely held corporation
• publicly held corporation
• bond
• certificate of incorporation
• dividend
• horizontal merger
• vertical merger
• conglomerate
• multinational corporation (MNC)

Businesses often rely on investment to expand operations. One way for a business to increase investment is to form a corporation. A corporation can grow even larger by combining with other corporations. Some corporations are so large that they do business all over the world.

Corporations

The most complex form of business organization is the corporation. A corporation is a legal entity, or being, owned by individual stockholders, each of whom faces limited liability for the firm's debts. Stockholders own stock, a certificate of ownership in a corporation. In other words, if you own stock in a corporation, you are a part-owner of that corporation. If a corporation issues 1,000 shares of stock, and you purchase 1 share, you own 1/1000th of the company.

Corporations differ from sole proprietorships, which have no identity beyond that of the owners. A corporation is defined as an “entity” because it has a legal identity separate from those of its owners. Legally, it is regarded much like an individual. A corporation pays taxes, may engage in business, make contracts, sue other parties, and get sued by others.

Many corporations make their headquarters in large cities.

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