Meaning of Dividend and

Classification of Company

Advocate Yam Kumar Yonjan

Lecturer, Nepal Law Campus
(LL.M. International Law and Commercial Law)
 Meaning of Dividend:
The word "dividend" comes from the Latin word "dividendum" ("thing to be divided").
Dividend is the payment by a company to its shareholders out of its distributable
profit.
In other words, dividend is paid to the shareholders out of the revenue profits earned
by it in the ordinary course of business.
Dividend represents that part of the profit of a firm which is distributed to the
shareholders.
The company declares the amount of dividend at its shareholders’ meeting.
Shareholders will get dividends in proportion to their shareholding in the company.
Dividend may be in the form of cash or non-cash, i.e. bonus shares.
Dividend decision is the financing decision of a business.
It is the distribution of revenue profit to the shareholders in proportion to their
holdings.
 Meaning of Dividend:
A dividend is the distribution of some of a company's
earnings to a class of its shareholders, as determined by the
company's board of directors.
Common shareholders of dividend-paying companies are
typically eligible as long as they own the stock before the ex-
dividend date.
Dividends are payments made by publicly-listed companies as
a reward to investors for putting their money into the venture.
Announcements of dividend payouts are generally
accompanied by a proportional increase or decrease in a
company's stock price.
 Meaning of Dividend:
Dividends must be approved by the shareholders through their voting rights. Although cash
dividends are the most common, dividends can also be issued as shares of stock or other
property. Along with companies, various mutual funds and exchange-traded funds (ETF)
also pay dividends.
A dividend is a token reward paid to the shareholders for their investment in a company’s
equity, and it usually originates from the company's net profits.
While the major portion of the profits is kept within the company as retained earnings–
which represent the money to be used for the company’s ongoing and future business
activities–the remainder can be allocated to the shareholders as a dividend.
 At times, companies may still make dividend payments even when they don’t make suitable
profits. They may do so to maintain their established track record of making regular
dividend payments.
The board of directors can choose to issue dividends over various time frames and with
different payout rates. Dividends can be paid at a scheduled frequency, such as monthly,
quarterly or annually.
Companies can also issue non-recurring special dividends either individually or in addition
to a scheduled dividend.
 Meaning of Dividend:
A dividend is a distribution of profits by a corporation to its shareholders. The current year profit
as well as the retained earnings of previous years are available for distribution; a corporation
usually is prohibited from paying a dividend out of its capital.
Distribution to shareholders may be in cash (usually a deposit into a bank account) or, if the
corporation has a dividend reinvestment plan, the amount can be paid by the issue of further
shares or by share repurchase. In some cases, the distribution may be of assets.
The dividend received by a shareholder is income of the shareholder and may be subject to
income tax (see dividend tax). The tax treatment of this income varies considerably between
jurisdictions. The corporation does not receive a tax deduction for the dividends it pays.
A dividend is allocated as a fixed amount per share with shareholders receiving a dividend in
proportion to their shareholding. Dividends can provide stable income and raise morale among
shareholders.
For the joint-stock company, paying dividends is not an expense; rather, it is the division of after-
tax profits among shareholders. Retained earnings (profits that have not been distributed as
dividends) are shown in the shareholders' equity section on the company's balance sheet – the
same as its issued share capital. 
Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any
time, sometimes called a special dividend to distinguish it from the fixed schedule dividends. 
Features of Dividend
A dividend is the distribution of some of a company's earnings to a class of
its shareholders.
If a company elects to distribute dividends, usually, both the date and the
amount is determined on a quarterly basis, after a company finalizes its
income statement and the board of directors meets to review the company's
financials.
On the declaration date, the Board of Directors announces the dividend,
the size of the dividend, the record date, and the payment date.
The record date is the day by which you must be on the company’s books as
a shareholder so as to receive the declared dividend.
Buy the stock before the ex-dividend date and you get the dividend; buy it
on or after the ex-date, and you don't - the seller of the stock gets it.
The payment date is when the company pays the declared dividend only to
shareholders who own the stock before the ex-date.
The nature of dividends
i. Cash or Non-cash:
Dividends may either be in cash or non-cash. Dividends are generally paid in cash to
the shareholders but sometimes instead of cash payments, shares are issued to the
existing shareholders, free of cash—which is known as issue of bonus shares.
ii. Final or Interim:
After finalization of accounts, the directors judge the financial position and then
recommend the amount of dividend at the annual general meeting.
Such dividend is called final div­idend whereas any dividend paid between two
annual general meetings is called interim dividend.
iii. Fixed or Variable:
In case of profit, preference shareholders are entitled to get dividend at a fixed rate
as per terms of their issue.
 Equity shareholders are entitled to get dividend out of the balance left after
payment of preference dividend and their rate of dividend may vary from year to
year depending on the volume of profit.
 Types of dividends
There are various types of dividends a company can pay to its shareholders. The most common types
of dividends are as follows.
1. Cash – this is the payment of actual cash from the company directly to the shareholders and is the
most common type of payment. The payment is usually made electronically (wire transfer), but
may also be paid by check or cash.
2. Stock – stock dividends are paid out to shareholders by issuing new shares in the company. These
are paid out pro-rata, based on the number of shares the investor already owns.
3. Assets – a company is not limited to paying distributions to its shareholders in the form of cash or
shares.  A company may also pay out other assets such as investment securities, physical assets,
and real estate, although this is not a common practice.
4. Special – a special dividend is one that’s paid outside of a company’s regular policy (i.e., quarterly,
annual, etc.). It is usually the result of having excess cash on hand for one reason or another.
5. Common – this refers to the class of shareholders (i.e., common shareholders), not what’s
actually being received as payment.
6. Preferred – this also refers to the class of shareholders receiving the payment.
 
Types of Dividend
 Types of Dividend
1. Cash Dividend: It is one of the most common types of dividend paid in
cash. The shareholders announce the amount to be disbursed among the
shareholder on the “date of declaration.” Then on the “date of record”, the
amount is assigned to the shareholders and finally, the payments are made on
the “date of payment”. The companies should have an adequate retained
earnings and enough cash balance to pay the shareholders in cash.
2. Scrip Dividend: Under this form, a company issues the transferable
promissory note to the shareholders, wherein it confirms the payment of
dividend on the future date.A scrip dividend has shorter maturity periods
and may or may not bear any interest. These types of dividend are issued
when a company does not have enough liquidity and require some time to
convert its current assets into cash.
3. Bond Dividend: The Bond Dividends are similar to the scrip dividends, but
the only difference is that they carry longer maturity period and bears
interest.
 Types of Dividend
4. Stock Dividend/ Bonus Shares: These types of dividend are issued when a company
lacks operating cash, but still issues, the common stock to the shareholders to keep them
happy.The shareholders get the additional shares in proportion to the shares already held
by them and don’t have to pay extra for these bonus shares. Despite an increase in the
number of outstanding shares of the firm, the issue of bonus shares has a favorable
psychological effect on the investors.
5. Property Dividend: These dividends are paid in the form of a property rather than in
cash. In case, a company lacks the operating cash; then non-monetary dividends are paid
to the investors.The property dividends can be in any form: inventory, asset, vehicle, real
estate, etc. The companies record the property given as a dividend at a fair market value,
as it may vary from the book value and then record the difference as a gain or loss.
6. Liquidating Dividend: When the board of directors decides to pay back the original
capital contributed by the equity shareholders as dividends, is called as a liquidating
dividend. These are usually paid at the time of winding up of the operations of the firm or
at the time of final closure.Thus, it is found out that usually the dividends are paid in
cash, but however in certain situations, there could be the other forms of dividend as
explained above.
Procedures of Dividend
A dividend’s value is determined on a per-share basis and is to be paid equally
to all shareholders of the same class (common, preferred, etc.). The payment
must be approved by the Board of Directors.
When a dividend is declared, it will then be paid on a certain date, known as
the payable date.
Steps of Dividend:
1. The company generates profits and retained earnings
2. The management team decides some excess profits should be paid out to
shareholders (instead of being reinvested)
3. The board approves the planned dividend
4. The company announces the dividend (the value per share, the date when it
will be paid, the record date, etc.)
5. The dividend is paid to shareholders.
Declaration of Dividend
There are four key dates involved in the dividend process, of which the declaration
date is the first.
1. Declaration date: The  declaration date is also referred to as the announcement
date since a company notifies shareholders and the rest of the market. The
declaration date is the date on which a company officially commits to the payment of
a dividend.
2. The ex-dividend date: The ex-dividend date, or ex-date, is the date on which a stock
begins trading without the dividend. To receive the declared dividend, shareholders
must own the stock prior to the ex-dividend date.
3. The record date : The record date usually occurs three business days after the ex-
dividend date and is the date on which a company officially determines the
shareholders of record, those who owned the stock prior to the ex-dividend date, who
are eligible to receive the dividend payment.
4. The payment date: The payment date is the date the company sends out dividend
payments to shareholders. The payment date is usually about one month after the
record date.
Dividend and Share Buyback
Managers of corporations have several types of distributions they can make to the
shareholders.
]The two most common types are dividends and share buybacks. A share buyback
is when a company uses cash on the balance sheet to repurchase shares in the open
market.
This has two effects.
(1) It returns cash to shareholders
(2) It reduces the number of shares outstanding.
The reason to perform share buybacks as an alternative means of returning capital
to shareholders is that it can help boost a company’s EPS.
By reducing the number of shares outstanding, the denominator in EPS (net
earnings/shares outstanding) is reduced and, thus, EPS increases. 
 Managers of corporations are frequently evaluated on their ability to grow
earnings per share, so they may be incentivized to use this strategy.
 Interim Dividend
An interim dividend is a dividend payment made before a company's annual general
meeting (AGM) and the release of final financial statements.
This declared dividend usually accompanies the company's interim financial
statements.
 The interim dividend is typically the smaller of the two payments made to
shareholders.
An interim dividend is typically one of two dividends given out by a company that is
providing shareholders with income on a semi-annual basis.
The interim dividend is usually paid out ahead of a firm's annual general meeting and
the release of the final version of its financial statements.
Final dividends are paid out after the release of the final version of a company's financial
statements.
As a result, final dividends are paid from current earnings, and interim dividends are
paid from retained earnings.
The company's Board of Directors is responsible for declaring an interim dividend, but
whether it's approved or not is up to shareholders.
Classification /Types of Companies
 Companies can be classified into different types based on their mode of incorporation,
the liability of the members, and number of the members. The most common types of
companies are:

1. Royal Chartered Companies

2. Statutory Companies
3. Registered or Incorporated Companies
4. Companies Limited By Shares
5. Companies Limited By Guarantee
6. Unlimited Companies
7. Public Company (or Public Limited Company)
8. Private Company (or Private Limited Company)
9. One Person Company(OPC)
10. Offshore Companies
11. Multinational Companies
12. Foreign Company
13. Holding and Subsidiary Company
14. Profit not Distributing Company
15. Government Company
Classification /Types of Companies
Classification /Types of Companies
Classification /Types of Companies
1. Royal Chartered Companies
Royal Chartered Companies are companies created by the Royal Charter. This means they are
granted power or a right by the monarch or by special order of a king or a queen. Examples of
Royal Chartered Companies are East India Company, BBC, Bank Of England, etc.
2. Statutory Companies
Statutory Companies are companies incorporated by means of a special act passed by the
central or state legislature. They are mostly invested with compulsory powers and are
responsible to carry out some special business of national importance. Some examples of
statutory companies are The NRB of Nepal (formed under BRB act,2058), The Reserve Bank
of India (formed under RBI act, 1934), Life Insurance Corporation of India (formed under
LIC Act, 1956).
3. Registered Or Incorporated Companies
All the other companies which are incorporated under the companies act passed by the
government comes under this head. These companies come under existence only after they
register themselves under the act and the certificate of incorporation is passed by the
Registrar of companies. Google India Pvt Ltd is an example of incorporated companies.
Classification /Types of Companies
4. Public Limited Company

The legal existence of a Public Limited Company is separate from its members (shareholders) and the liability of its members is
also limited. Its existence is thus not affected by the retirement or death of its shareholders. A minimum of 7 members is
needed to form a Public Limited company but there is no maximum limit on this. The company collects its capital by the sale of
its shares to the shareholders. The shareholders of a company do not have the right to participate in the day-to-day
management of the company, thus separating ownership from management. All the major decisions of the company are taken
by the Board of Directors.
5. Private Limited Company
Private Limited (Pvt Ltd) companies have more than 1 and less than 101 members and their liability is limited or unlimited
depending on the type of the company it is. Unlike Public Limited companies, here the transfer of shares is limited to its
members and the general public cannot subscribe to its shares and debentures. Pvt Ltd companies are exempted from many
rules and regulations which are applicable to Public Limited companies, for example, the need to file a prospectus with the
Registrar, the need to hold the statutory general meeting or maintain annual reports etc. Also, it can start operations after
receiving just the certificate of incorporation, whereas a Public Limited company needs a certificate of commencement as well.
It is a great option if you want the advantages of limited liability and yet want greater control over your business and maintain
its privacy. This is the most popular type of company for start-ups to be registered as.
6. One Person Company
One Person Company (OPC) as a company type was introduced in the Companies Act of 2006 in Nepal.
It is similar to a sole proprietorship but the owner shall have limited liability and thus his personal assets would not be at risk if
losses need to be recovered or if the company is liquidated.
Types Of Companies Based On The Liability Of The Members
In case of liquidation, the members of a company can either be liable to pay even from their personal assets or to
the extent of the face value of shares held by them. It all depends on how the company is registered as.
Companies can be classified into three types based on the liability of the members. These are –
1. Companies Limited By Shares
The liability of the shareholders is limited to the extent of the face value of shares held by them. Most Pvt Ltd
companies are of this type.
2. Companies Limited By Guarantee
In some companies, the memorandum of association mentions amounts of money that some members
guarantee to pay. In case of winding up, they will be liable only to pay only the amount so guaranteed. The
company or its creditors cannot compel them to pay any more money.

3. Unlimited Companies
There is no limit on the liability of the shareholders. In case of liquidation, they might have to pay even from
their personal assets to cover the liabilities of the company. This type of company is quite uncommon today due
to obvious reasons.
There are a lot of options to choose from when you plan to register your startup. Make sure you research the pros
and cons of each and register your firm accordingly.
 Now that you know about different types of companies, let’s move on to the guide on how to register your
company.
Companies on the basis of Control or Holding
In terms of control, there are two types of companies.
a) Holding and Subsidiary Companies
In some cases, a company’s shares might be held fully or partly by another company.
Here, the company owning these shares becomes the holding or parent company.
Likewise, the company whose shares the parent company owns becomes its subsidiary
company.
Holding companies exercise control over their subsidiaries by dictating the composition
of their board of directors. Furthermore, parent companies also exercise control by
owning more than 50% of their subsidiary companies’ shares.
b) Associate Companies
Associate companies are those in which other companies have significant influence.
This “significant influence” amounts to ownership of at least 20% shares of the associate
company.
The other company’s control can exist in terms of the associate company’s business
decisions under an agreement. Associate companies can also exist under joint venture
agreements.
Companies in terms of Access to Capital
 When we consider the access a company has to capital, companies may be
either listed or unlisted.
1. Listed Company: Listed companies have their securities
listed on stock exchanges. This means people can freely buy
their securities. Hence, only public companies can be
listed, and not private companies.
2. Unlisted Company: Unlisted companies, on the other
hand, do not list their securities on stock exchanges. Both,
public, as well as private companies, can come under this
category.
Other Types of Company
a) Government Companies
Basically, Government companies are those in which more than 50% of share capital is
held by either the central government, or by one or more state government, or jointly by
the central government and one or more state government. In Nepal, Companies Act, 2063
has not mentioned about the government companies.
b) Foreign Companies
Foreign companies are incorporated outside India. They also conduct business in India
using a place of business either by themselves or with some other company.
c) Charitable Companies
Certain companies have charitable purposes as their objectives.
Charitable companies have the promotion of arts, science, culture, religion, education,
sports, trade, commerce, etc. as their objectives. Since they do not earn profits, they also do
not pay any dividend to their members.
d) Dormant Companies
These companies are generally formed for future projects. They do not have significant
accounting transactions and do not have to carry out all compliances of regular companies.
 Offshore Company
First of all, we will define the term Offshore.  Offshore means located or situated
beyond one’s national boundaries.
The term Offshore Company has two definitions depending on its perspective.
From the standpoint of the principals of the company, it is a company that one has
filed outside of the country where its principals reside. The principals include the
officers, directors, shareholders, members, partners.
From within its country of formation, it is a company that has been formed for the
purpose of operating outside of the jurisdiction where it was originally filed.
The term "offshore company" or "offshore corporation" is used in at least two
distinct and different ways. An offshore company may be a reference to:
a) a company, group or sometimes a division thereof, which engages in off
shoring business processes.
b) International business companies (IBC) or other types of legal entities, which are
incorporated under the laws of a jurisdiction, that prohibits local economic activities.
Offshore Company
Although all offshore companies differ to a degree
depending upon the corporate law in the relevant
jurisdiction, all offshore companies tend to enjoy
certain core characteristics:
1. They are broadly not subject to taxation in their
home jurisdiction.
2. The corporate regime will be designed to promote
business flexibility.
3. Regulation of corporate activities will normally be
lighter than in a developed country
Big Organizations use Offshore Companies
Big Organizations use Offshore Companies
One tax-savings example is Apple, Inc., the technology company headquartered in Cupertino, California
in the United States of America.
 Apple established offshore companies in Ireland. Neither the Irish holding company nor the Irish
corporation that is the principal company, as of this writing, have paid any income taxes in Ireland for the
past several years. Suppose one company were to associate with  another company doing business in
Ireland.
 This country allows some Irish companies to claim non-residence status. Therefore, this allows Apple’s
main company to not pay taxes anywhere at all.

Domestic Company Comparison

In contrast, a domestic, or local company is a corporation or partnership one has created or organized for
the purpose of operating from its country of formation.
Typically, the officers, directors and, most often, the owners are located in the same nation in which one
has filed the organization.
It can conduct business within the borders of the country where they formed it, in addition to other
countries if they meet certain requirements. For example, UBS Bank is filed as UBS Group AG the Swiss
Canton of Zurich. It conducts business in that country. Its lawyers have also registered it to conduct
banking business outside of Swiss borders.
 Offshore Company Uses
Offshore Company Uses
 An offshore company, similar to a domestic one, can open bank accounts, own property, operate a business, enter into
written agreements, buy and sell and engage in other forms of commerce.
 Also known as an International Business Company (IBC or Offshore IBC), it generally does not have tax obligations in
the country where it was formed. It needs to conduct its business outside of its country of formation.
 Offshore companies can be corporations, that we also call “limited companies,” limited liability companies (LLCs) or
limited partnerships, for example. Belize has a entities similar to LLCs called limited duration companies (LDCs). LDCs
have 50 lifespan, at which time they can be renewed or re-filed.

Offshore Company Jurisdictions

 There are a number of jurisdictions where offshore incorporation can be conducted. These locations include Nevis,
Belize, Cook Islands, BVI, Seychelles, Panama and Anguilla. The decision about where to file depends on the price,
speed, ease, and reputation of the jurisdiction.
 For example, a Nevis LLC tends to be quite advantageous for the US person. This entity seems to offer superior asset
protection and tax benefits. Assets held inside of a Nevis LLC can be shielded from creditors. Plus, an LLC in Nevis does
not pay taxes in that jurisdiction. When the right forms are filed, it is simply an owner flow-through entity for tax
purposes, without any income taxes at the company level. A Belize LDC offers other affordable means to protect assets
and gain financial privacy from would-be litigants. Belize has a fairly robust banking system with debit cards and online
access.The Cook Islands LLC offers benefits that are nearly identical to that of Nevis. Plus the asset protection provisions
are superior to that of other jurisdictions. Cook Islands is located in the South Pacific in the same time zone as Hawaii. It
has a very stable government, independent from, yet associated with New Zealand.
Profit not Distributing Company

A not for profit company is a company incorporated on conditions that it shall

not be entitled to distribute or pay to its members any dividends or any other
moneys out of the profits earned or savings made for the attainment of any
objectives.
These companies are generally incorporated with the following objectives:
Development and promotion of any profession;
Protection of collective rights and interests of the persons engaged in a
specific profession or occupation; or
For the attainment of any scientific, academic, social, benevolent or public
utility or welfare objective on the condition of not distributing dividends.
The governing law for a company not distributing profits
Companies Act 2006 governs the registration and establishment of a company
not distributing profits in Nepal.
Registration of a company not distributing profits.
Promoters and Documents Required for Registration
Required promoters for registration
A profit not distributing company requires at least five (5) promoters for registration. The
Companies Act 2006 does not limit the maximum numbers of promoters. Any person,
trustee of a public trust or corporate body can incorporate a company not distributing
profits.
The membership is not transferable and expires only as a result of death, cancellation of
registration or dissolution, voluntary resignation, and merger with another company. 
Required documents for registration
Following documents need to be submitted at the OCR for registration:
Application for registration;
Memorandum of Association (“MOA”) and Articles of Association (“AOA”) of proposed
company (2 copies of each);
Citizenship certificate of promoters and witnesses;
Copy of certificate of registration, MOA, AOA and board resolution of the promoter, if
promoter is a company; and
Power of attorney for the registration
MEANING OF MULTINATIONAL COMPANIES
Multinational companies are those companies whose management, ownership and control are spread in
more than one country. It does business in two or more countries. It is a large industrial organization.
They are established in one country as parent country and in other countries as subsidiaries or as host
countries. They produce and distribute goods and services in all these countries where they operate.
The main aim of these companies is to operate business in most of the part of the world. The Popular
multinational companies of the world are IBM Company (USA), Sony Company. Wai wai, nestle company,
coca cola company.
Multinational Corporations or Multinational Companies are corporate organizations that operate in more
than one country other than home country.
Multinational Companies (MNCs) have their central head office in the home country and secondary
offices, facilities, factories, industries, and other such assets in other countries.
These companies operate worldwide and hence also known as global enterprises. The activities are
controlled and operated by the parent company worldwide. 
The products and services of MNCs are sold around various countries which require global management.
High turnover and many assets, aggressive marketing are some of the features of Multinational Companies.
LTI, TCS, Tech Mahindra, Deloitte, Capgemini are some of the examples of MNCs in India.
Multinational Corporations
A multinational corporation (MNC) has facilities and other assets in at least one country
other than its home country.
A multinational company generally has offices and/or factories in different countries and a
centralized head office where they coordinate global management. These companies, also
known as international, stateless, or transnational corporate organizations tend to have
budgets that exceed those of many small countries. 
Multinational corporations participate in business in two or more countries.
MNC can have a positive economic effect on the country where the business is taking place.
A multinational corporation, or multinational enterprise, is an international corporation
that derives at least a quarter of its revenues outside its home country.
Many multinational enterprises are based in developed nations. Multinational advocates
say they create high-paying jobs and technologically advanced goods in countries that
otherwise would not have access to such opportunities or goods.
 However, critics of these enterprises believe these corporations have undue political
influence over governments, exploit developing nations, and create job losses in their own
home countries.
Multinational Corporation (MNC)
A multinational corporation (MNC) is usually a large corporation incorporated in one country
which produces or sells goods or services in various countries. The two main characteristics of
MNCs are their large size and the fact that their worldwide activities are centrally controlled by
the parent companies.
1. Importing and exporting goods and services
2. Making significant investments in a foreign country
3. Buying and selling licenses in foreign markets
4. Engaging in contract manufacturing — permitting a local manufacturer in a foreign country
to produce its products
5. Opening manufacturing facilities or assembly operations in foreign countries
MNCs may gain from their global presence in a variety of ways. First of all, MNCs can benefit
from the economy of scale by spreading R&D expenditures and advertising costs over their
global sales, pooling global purchasing power over suppliers, and utilizing their technological
and managerial know-how globally with minimal additional costs.
Furthermore, MNCs can use their global presence to take advantage of underpriced labor
services available in certain developing countries, and gain access to special R&D capabilities
residing in advanced foreign countries.
Multinational Corporations
The history of the multinational is linked with the history of
colonialism. Many of the first multinationals were commissioned
at the behest of European monarchs in order to conduct
expeditions.
Many of the colonies not held by Spain or Portugal were under
the administration of some of the world's earliest multinationals.
One of the first arose in 1600: The East India Company, founded
by the British. It was headquartered in London, and took part in
international trade and exploration, with trading posts in India.
Other examples include the Swedish Africa Company, founded
in 1649, and the Hudson's Bay Company, which was incorporated
in the 17th century.
Characteristics of Multinational Companies

In general, there is a national strength of large companies as the main body, in the
way of foreign direct investment or acquire local enterprises,
established subsidiaries or branches in many countries.
It usually has a complete decision-making system and the highest decision-
making centre, each subsidiary or branch has its own decision-making body,
according to their different features and operations to make decisions, but its
decision must be subordinated to the highest decision-making centre.
MNCs seek markets in worldwide and rational production layout, professional
fixed-point production, fixed-point sales products, in order to achieve maximum
profit; Due to strong economic and technical strength, with fast information
transmission, as well as funding for rapid cross-border transfers, the
multinational has stronger competitiveness in the world.
Many large multinational companies have varying degrees of monopoly in some
area, due to economic and technical strength or production advantages.
Types of Multinationals
There are four categories of multinationals that exist. They include:
1. A decentralized corporation with a strong presence in its home country.
2.A global, centralized corporation that acquires cost advantage where cheap resources are
available.
3.A global company that builds on the parent corporation’s R&D.
4.A transnational enterprise that uses all three categories.
There are subtle differences between the different kinds of multinational corporations. For
instance, a transnational—which is one type of multinational—may have its home in at least two
nations and spread out its operations in many countries for a high level of local response. Nestlé
S.A. is an example of a transnational corporation that executes business and operational
decisions in and outside of its headquarters.
Meanwhile, a multinational enterprise controls and manages plants in at least two countries. This
type of multinational will take part in foreign investment, as the company invests directly in host
country plants in order to stake an ownership claim, thereby avoiding transaction costs. Apple
Inc. is a great example of a multinational enterprise, as it tries to maximize cost
advantages through foreign investments in international plants and Toyota is one of the
world's largest multinational corporations with its headquarters in Toyota City, Japan.
Thank You