AEM1200_0128ToPost - AEM1200 Introduction to Business...

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Unformatted text preview: AEM1200, Introduction to Business Management AEM1200, Wednesday 1/28 Business Ownership Forms of business ownership; Forms Corporate governance Corporate Forms of Business Ownership Forms Sole proprietorship A business owned and managed by one person; “as old as the hills.” Doesn’t business give a lot of scale; not a lot of scope of info from others; unlimited liability - bear all the risk; all A llegal form of business with two or more owners; share responsibilities, risks egal and profits; All partners remain liable; and A llegal entity with authority to act and have liability separate from its owners; egal solved problems of giving access of info to highly successful businessmen, while at same time minimizing risk of investors to just what they invested at The right to use a specific business’s name and sell its products or services in a The given territory; a subset form of businss; a pattern of business that becomes successful successful Ex: McDonalds, Starbuck’s, etc A business owned and controlled by the people who use it – producers, business consumers, or workers with similar needs who pool their resources for mutual gain. gain. Partnership Partnership Corporation Corporation Franchise Cooperatives Ownerships, Partnerships and Corporations (2000) Ownerships, Sole proprietors make up almost 75% of businesses in, but Corporations amounted for 89% of all sales; This tells us that Sole proprietorships are easy to start Sole Proprietorships Sole Advantages Ease of start/end Be your own boss Be (personal) (personal) Pride of ownership Disadvantages Unlimited liability Limited financial resources Difficulty in mgmt. Difficulty Supervise many people in several Supervise locations at all times; locations Leaving a legacy - create a Leaving wealth that you can pass to your children your Time commitment Few fringe benefits Few Limited growth Limited life span Retain profit No special taxes No It dies with you; you can It eventually pass it on or sell it or move it but if it doesn’t move on to next person its dead next Normal income taxes only Partnerships Partnerships Advantages More financial resources Shared mgmt. Longer survival Disagreements among partners (Think of marriage) Difficult to terminate Disadvantages Unlimited liability Division of profits Corporations Corporations Advantages More money for investment Limited liability Disadvantages Initial cost very costly need an accountant and a lawyer First corporation and then if there is a distribution of profit it is taxed (Because a corporation is considered a legal person Paperwork only risk is the money you invested Two tax returns Separation of ownership/mgmt. Ease of drawing talented employees Ease of ownership change buy and sell shares Termination difficult Double taxation Corporate governance Perpetual life Size Partnership – Corporation Hybrids Partnership Limited Partnerships A partnership with general partners (partners that contribute money partnership and management, and are fully liable) and limited partners (partners that only contribute money and run only the risk of that investment); that A corporate-like ownership structure that avoids double taxation; Limited liability, capacity to buy and sell share, but avoid double Limited taxation; however, rules ask to have only 1000 share holders only in US and some other requirements US Partnership-like ownership structure that avoids unlimited liability and Partnership-like double taxation; double Partnership-like ownership structure that avoids unlimited liability. S Corporations Limited Liability Companies Limited Liability Partnership Franchises Franchises Advantages + Management & Management marketing ass’t marketing + Personal ownership + Recognized name Recognized + Disadvantages High start-up costs Shared Profit Management regulation Coattail effects - Getting access to the Getting brand brand + Financial advice & Financial ass’t ass’t + Access to supply chain + Lower failure rate In same way good rep can In help, poor rep can hurt you. If one franchise is doing poorly or too close to another it can hurt one of the other franchise’s. (Two McDonald’s too close together) together) - Restrictions on selling - Fraudulent franchisors Cooperatives Cooperatives A business owned and controlled by the people who use business it – producers, consumers, or workers with similar needs who pool their resources for mutual gain; who Eg. Greenstar Markets - co-op in Ithaca Over 100 million people are members of over 47,000 Over cooperatives in the U.S.A. cooperatives Top three: Nationwide Mutual (insurance), CHS, Inc. (food and Top agriculture), Dairy Farmers of America (food and agriculture) agriculture), Uncommitted directors; “Dead-weight” members Lack of transparency - as soon as org is set up it is important to Lack share info with everyone share Lack of enough capital Avoid “Not-for-profit” organizations Organization whose primary objective is to Organization support some issue or matter of private interest or public concern for non-commercial purposes; or Main characteristics (US) Main No profits, profit distribution or stock issuance; Does not pay taxes; Monetary contributions to not for profit organizations Monetary are not included in taxable income. are 501-c3 section of the US tax code. Which of the following is the most stable organization? A.) Sole Proprietorship B.) Partnership C.) Corporation D.) Cooperative Corporate governance Corporate The relationship of a company to its The shareholders and, more broadly, to society The Board of Directors The BOD group of people who represent share holders and have responsibili ty of choosing officers The Sarbanes-Oxley Act The Public Company Accounting Oversight Board Prohibit audit firms from doing a variety of non-audit Prohibit work for their clients Independent audit committees Independent Forbid company loans to company executives Top executives must certify company accounts Protects whistleblowers Section 404 makes managers responsible for Section maintaining an “adequate internal control structure and procedures for financial reporting”; and demands that companies' auditors “attest” to the management's assessment of these controls and disclose any “material weaknesses”. weaknesses”. Criticisms of the Corporate Form Criticisms “…the corporation is a psychopath. Like all psychopaths, the firm is the singularly self-interested: its purpose is to create wealth for its shareholders. And, like all psychopaths, the firm is irresponsible, because it puts others at risk to satisfy its profit-maximising goal, harming employees and customers, and damaging the environment. The corporation manipulates everything. It is grandiose, always insisting that it is the best, or number one. It has no empathy, refuses to accept responsibility for its actions and feels no remorse. It relates to others only superficially, via make-believe versions of itself manufactured by public-relations consultants and marketing men. In short, if the metaphor of the firm as person is a valid one, then the corporation is clinically insane… Through their psychopathic pursuit of profit, (corporations) make good people do bad things.” make Review of the documentary “The Corporation”, The Economist, 5/6/2004 CORPORATION, n. An ingenious device for obtaining individual profit without individual responsibility. without Ambrose Bierce's Devil's Dictionary Ambrose Devil's Takeaways Takeaways There are many ways to organize a business; In terms of flexibility and ability to grow, the In corporation form is the most successful form of organization in the U.S. economy organization But also presents the most governance problems Franchising and cooperatives are alternative Franchising ways to exercise entrepreneurial control over organizations. organizations. ...
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This note was uploaded on 03/08/2009 for the course AEM 1200 taught by Professor Perez,p.d. during the Spring '06 term at Cornell.

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