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corporations ppt - Corporations Corporations are"persons in...

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Corporations Corporations are "persons," in the eyes of the law Corporations are only 20% of all U.S. businesses Most corporations are fairly small But almost all very large businesses are incorporated 90% of all sales go through corporations
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2 main views of the legal structure of business entities: 1. Associated, collective group rights 2. Separate, distinct entity
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Distinct Legal Entity A corporation is separate and distinct from its owners True owners = shareholders Thus, corporations offer limited liability to owners Promoters are different, however
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Advantages of Corporate Format: 1. Limited liability for owners 2. More easily transferable ownership 3. Corporation can opt for perpetual existence 4. Usually easier to raise capital 5. Subject to more regulation
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Disadvantages of Corporate Format: 1. More expensive to form 2. More documentation required 3. More dealing with lawyers 4. More pretense may be needed
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“Corporate Lawyer”
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Double Taxation Portion of income that are dividends are taxable as income for the corporation and also as income for shareholders. So that income is taxed twice, at the corporate and individual levels
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Comparative Corporate Governance United States: 2 Theories of the Corporation Entity Theory: a “being” with responsibilities for its stakeholders Nexus of Contracts: self-interested focus; measure of success is profitability Main Focus: Corporate profit (S/H gain) Japan: Protection of employee & creditors Germany: for “the common weal”
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Comparative Corporate Governance Two Models : Contractarian Corporate Governance (U.S.) Duty is to create shareholder wealth Market forces to enforce alignment (market for corporate control Communitarian Corporate Governance (Japan & Germany) Corporation as a separate entity that can do good or harm Social responsibilities to stakeholders & society
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Two Models: Pros & Cons Communitarian Model Pro: Employee Focus (lifetime employment) allows for development of firm-specific human capital Con: Bias against risk (especially if dominated by banks who are risk-averse) Listed Companies >10 years: U.S. 40%; Japan .7% (Avg. age: U.S. 14 years, Germany 55) Con: Inflexible Labor Markets (high unemployment
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Two Models: Pros & Cons Contractarian Model Market for Corporate Control Hostile Takeovers High reliance on external capital markets 9,000 firms listed on 3 major exchanges vs. Japan: 1,800; Germany: 700 Therefore, greater liquidity Developed Venture Capital Markets Full Disclosure Standard Convergence?
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3 main concepts concerning corporations: 1. Members/founders/shareholders are distinct from the entity they created/own 2. Ease of transferring ownership 3. Limited liability of shareholders/members
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Most corporate law is state law
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Rise of the Large Corporation “companies have long since lost their human dimension and have turned man into a little cog in their machinery, utterly separated from what, and for whom, that machinery is working, and what the impact of its product is on the world” Vaclev Havel (1986)
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