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Unformatted text preview: AEM1200, Introduction to Business Management AEM1200, Monday 9/8 Business Ownership Forms of business ownership; Corporate governance Forms of Business Ownership Forms
Sole proprietorship A business owned and managed by one person A legal form of business with two or more owners A llegal entity with authority to act and have liability separate from its egal owners owners The right to use a specific business’s name and sell its products or The services in a given territory services 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. mutual Partnership Corporation Franchise Cooperatives Ownerships, Partnerships and Corporations (2000) Ownerships, Sole Proprietorships Sole 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 Partnerships
More financial resources Shared mgmt. Longer survival Disagreements among partners Difficult to terminate Unlimited liability Division of profits Corporations 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 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; 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
+ Management & Management marketing ass’t marketing + Personal ownership + Recognized name + Financial advice & Financial ass’t ass’t + Lower failure rate High start-up costs Shared Profit Management Management regulation regulation - Coattail effects - Restrictions on selling - Fraudulent Fraudulent franchisors 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. 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 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. Corporate governance Corporate
The relationship of a company to its The shareholders and, more broadly, to society The Board of Directors The 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 11/12/2009 for the course AEM 1200 at Cornell University (Engineering School).