Sara Alicia Ortega Ricarte
Business Organization
Proprietorship
Unincorporated Business owned by one individual
Advantages
Easy and inexpensive to form
Subcject to few government regulations
Taxed like an individual
Disadvantages
Difficult for proprietorships to obtain large sums of capital
Transferring ownership can be difficult
Life of proprietorship is limited to time the creator owns it
Propietor has unlimited liability for business debts
Partnership
unincorporated business owned by 2 or more persons
Disadvantages
Advantages
Taxed like an individual
subject to few government regulations
Easy and inexpensive to form
Proprietor has unlimited liability for business debs
Life of partnership is lmited to time the same group of partners owns it
Transferring ownership can be difficult
Difficult for partnership to obtain large sums of capital (but better than for a proprietorship)
Corporation
Legal entity created by a state
Advantages
Disadvantages
Easy transferability of ownership
Separate and distinct from its owners
Unlimited life
Limited liability
Earrins are subject to double taxation
Setting up and filing state and federal reports is complex
Corporate charter is filed with the state providing information about the company and directors
Bylaws are for internal management and procedures
Organization (Hybrid businesses)
LLP
LLC
S Corporation
Structure of the Firm
Board of Directors
President, Chief Executive Officer (CEO)
VP Finance; Chief Financial Officer (CFO)
VP Information Systems; Chief Information Officer (CIO)
Vice President: Operattions (Chief Operating Officer), COO
VP: Sakes
Controller
Treasurer
Tax Department
Financial Accounting
They will be talking about cashflow
Inventory Manager
Director of Capital Budgeting
Goals
Stockholder Wealth Maximization
Considers the risk and timing associated with expected earnings per share in order to maximize the price of the firm's common stock
Social Responsibility
Managerial incentives to maximize shareholder wealth
Stock price maximization and social welfare
Value of the Firm
Firm Factors
Investor Factors
Market Factors
Value = current p(present) value of expected cash flows (CF) based on the return demanded by investors (r)
at least one partner must be a general partner
A partnership form of business that provides for limited liability for some partners
Provides for limited liability for owners
FLexible ownership Structure
Taxed like a partnership
one kind of stock
chooses to be taxed like a partnership
100 or fewer stockholders
Director of capital budgeting
inventory manager
Credit manager
Profit Maximization. Does not always consider:
Government Regulations and rules
Competitive Environment - domestic and foreing
Economic Conditions
Investing Policy - capital budgeting
Dividend Policy - dividend policy
Financing Policy - capital structure
Normal Operations - revenues and expenses
Age - lifestyle
Risk Attitude - preference
Interest Rate
Income - savings
Agency Relations
Stockholders vs Managers
Stockholders vs creditors
Treat of hostile takeover
due to underpriced stock
caused by poor management
Shareholders intervention
Managerial Compensation
performance shares
executive options
Stakeholders must be treated fairly
Creditors lend at rates based on
the firm's existing capital structure
expectations concerning the riskines of future assets
riskiness of the firm's existing assets
Expectations concerning future capital structure changes
Easier for corporations than for proprietorships and partnerships to raise money in the financial markets
Timing of earnings
Risk of project
Risk of financing
Total corporate profit versus earnings per share EPS
Dividentd payout versus reinvestment
owner/principal hires an agent and delegates decision-making authority to that agent to act on behalf of the principal
Multinational corporations
operate in more than one country
to seek new technology
to seek production efficiency
to seek raw materials
to avoid political and regulatory hurdles
to seek new markets
Versus domestic managerial finance
economic and legal ramifications
role of governments
language differences
cultural differences
different currency denominations
political risk