AEM1200_0908ToPost - AEM1200 Introduction to Business...

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Unformatted text preview: AEM1200, Introduction to Business Management Monday 9/8 Business Ownership Forms of business ownership; Corporate governance Forms of Business Ownership Sole proprietorship A business owned and managed by one person A legal form of business with two or more owners A legal entity with authority to act and have liability separate from its owners The right to use a specific business's name and sell its products or services in a given territory A business owned and controlled by the people who use it producers, consumers, or workers with similar needs who pool their resources for mutual gain. Partnership Corporation Franchise Cooperatives Ownerships, Partnerships and Corporations (2000) Sole Proprietorships Ease of start/end Be your own boss Pride of ownership Leaving a legacy Retain profit No special taxes Unlimited liability Limited financial resources Difficulty in mgmt. Time commitment Few fringe benefits Limited growth Limited life span Partnerships More financial resources Shared mgmt. Longer survival Disagreements among partners Difficult to terminate Unlimited liability Division of profits Corporations More money for investment Limited liability Separation of ownership/mgmt. Initial cost Paperwork Two tax returns Termination difficult Double taxation Corporate governance Ease of drawing talented employees Ease of ownership change Perpetual life Size Partnership Corporation Hybrids Limited Partnerships A partnership with general partners (partners that contribute money and management, and are fully liable) and limited partners (partners that only contribute money and run only the risk of that investment); A corporate-like ownership structure that avoids double taxation; Partnership-like ownership structure that avoids unlimited liability and double taxation; Partnership-like ownership structure that avoids unlimited liability. S Corporations Limited Liability Companies Limited Liability Partnership Franchises + Management & marketing ass't + Personal ownership + Recognized name + Financial advice & ass't + Lower failure rate High start-up costs Shared Profit Management regulation - Coattail effects - Restrictions on selling - Fraudulent franchisors Cooperatives A business owned and controlled by the people who use it producers, consumers, or workers with similar needs who pool their resources for mutual gain; Eg. Greenstar Markets. Over 100 million people are members of over 47,000 cooperatives in the U.S.A. Top three: Nationwide Mutual (insurance), CHS, Inc. (food and agriculture), Dairy Farmers of America (food and agriculture) Uncommitted directors; "Dead-weight" members Lack of transparency Lack of enough capital Avoid "Not-for-profit" organizations Organization whose primary objective is to support some issue or matter of private interest or public concern for non-commercial purposes; Main characteristics (US) No profits, profit distribution or stock issuance; Does not pay taxes; Monetary contributions to not for profit organizations are not included in taxable income. 501-c3 section of the US tax code. Corporate governance The relationship of a company to its shareholders and, more broadly, to society The Board of Directors The Sarbanes-Oxley Act Public Company Accounting Oversight Board Prohibit audit firms from doing a variety of non-audit work for their clients Independent audit committees Forbid company loans to company executives Top executives must certify company accounts Protects whistleblowers Section 404 makes managers responsible for 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". Criticisms of the Corporate Form "...the corporation is a psychopath. Like all psychopaths, the firm is 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." Review of the documentary "The Corporation", The Economist, 5/6/2004 CORPORATION, n. An ingenious device for obtaining individual profit without individual responsibility. Ambrose Bierce's Devil's Dictionary Takeaways There are many ways to organize a business; In terms of flexibility and ability to grow, the corporation form is the most successful form of organization in the U.S. economy But also presents the most governance problems Franchising and cooperatives are alternative ways to exercise entrepreneurial control over organizations. ...
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  • Spring '06
  • PEREZ,P.D.
  • Corporation, unlimited liability, Partnership-like ownership structure, corporate-like ownership structure

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