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The Corporation
Chapter Outline
1.1 The Four Types of Firms
1.2 Ownership Versus Control of Corporations
1.3 The Stock Market
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Learning Objectives
1. List and define the four major types of
firms in the U.S.; describe major
characteristics of each type, including
the means for distributing income to
owners.
2. Distinguish between limited and
unlimited liability, and list firm types that
are subject to each type of liability.
3. Describe the taxation consequences for
C and S corporate forms.
Copyright 2014 Pearson Education, Inc. All rights reserved.
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Learning Objectives
4. Discuss the division of corporate ownership
into shares of stock; evaluate the
implications of that division for corporate
decision making.
5. Explain how corporate bankruptcy can be
viewed as a change in firm ownership.
6. Compare and contrast the characteristics
of shares that are publicly traded and the
characteristics of those that are not.
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Source: www.bizstats.com
Copyright 2014 Pearson Education, Inc. All rights reserved.
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Disadvantages
Unlimited personal liability
Limited life
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Limited Partners
Have limited liability and cannot lose more than their
initial investment
Have no management authority and cannot legally be
involved in the managerial decision making for the
business
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S Corporations
Firms profits are not subject to corporate income tax,
but instead are allocated directly to the shareholders.
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Private Company
Stock may be traded privately.
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Secondary Markets
After the initial transaction in the primary
market, the shares continue to trade in a
secondary market between investors.
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NASDAQ
Does not meet in a physical location
May have many market makers for a single stock
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Source: www.world-exchanges.org
Copyright 2014 Pearson Education, Inc. All rights reserved.
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Chapter Quiz
1. What are the advantages and
disadvantages of organizing a business as
a S corporation?
2. How does a limited partnership differ from
a limited liability company?
3. What is the principal-agent problem that
may exist in a corporation?
4. What is the NASDAQ?
5. What advantage does a stock market
provide to investors of corporations?
Copyright 2014 Pearson Education, Inc. All rights reserved.
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