4-8

Summarize how a corporation is formed.

A corporation is an artificial person created by law, with most of the legal rights of a real person, including the right to start and operate a business, to buy or sell property, to borrow money, to be sued or sue, and to enter into contracts. With the corporate form of ownership, stock can be sold to individuals to raise capital. The people who own a corporation's common or preferred stock are called stockholders. Stockholders are entitled to receive any dividends paid by the corporation, and common stockholders can vote either in person or by proxy. Most experts believe that the services of a lawyer are necessary when making decisions about where to incorporate and about obtaining a corporate charter, issuing stock, holding an organizational meeting, and all other legal details involved in incorporation. In theory, stockholders are able to control the activities of the corporation because they elect the board of directors who appoint the corporate officers.

Explain how growth from within and growth through mergers can enable a business to expand.

A corporation may grow by expanding its present operations or through a merger or an acquisition. Although most mergers are friendly, hostile takeovers also occur. A hostile takeover is a situation in which the management and board of directors of a firm targeted for acquisition disapprove of the acquisition. Mergers generally are classified as horizontal, vertical, or conglomerate. While economists, financial analysts, corporate managers, and stockholders debate the merits of mergers, some trends should be noted. First, experts predict that future mergers will be the result of cash-rich companies looking to acquire businesses that will enhance their position in the marketplace or an industry. Second, more mergers are likely to involve foreign companies or investors. Third, mergers will be driven by business logic and the desire to compete in the international marketplace

Explain the concept and types of franchising.

A franchise is a license to operate an individually owned business as though it were part of a chain. The franchisor provides a known business name, management skills, a method of doing business, and the training and required materials. The franchisee contributes labor and capital, operates the franchised business, and agrees to abide by the provisions of the franchise agreement. There are three major categories of franchise agreements.

Define what a small business is and recognize the fields in which small businesses are concentrated.

A small business is one that is independently owned and operated for profit and is not dominant in its field. There are about 28.8 million businesses in this country, and 99.9 percent of them are small businesses. Small businesses employ more than half the nation's workforce. Recently, an average of 78.5 percent of new businesses survived one year. About one-half of all firms survived five years or longer and about one-third of firms survived ten years or longer.

Describe the advantages and disadvantages of partnerships.

Although partnership eliminates some of the disadvantages of sole proprietorship, it is the least popular of the major forms of business ownership. The major advantages of a partnership include ease of start-up, availability of capital and credit, personal interest, combined skills and knowledge, retention of profits, and possible tax advantages. The effects of management disagreements are one of the major disadvantages of a partnership. Other disadvantages include unlimited liability (in a general partnership), lack of continuity, and frozen investment. By forming a limited partnership, the disadvantage of unlimited liability may be eliminated for the limited partner(s). This same disadvantage may be eliminated for partners that form a limited liability partnership (LLP). Of course, special requirements must be met if partners form either the limited partnership or the LLP.

Understand what an organization is and identify its characteristics.

An organization is a group of two or more people working together to achieve a common set of goals. The relationships among positions within an organization can be illustrated by means of an organization chart. Five elements—job design, departmentalization, delegation, span of management, and chain of command—help to determine what an organization chart and the organization itself look like.

Discuss the steps in the managerial decision-making process.

Decision making, an integral part of a manager's work, is the process of developing a set of possible alternative solutions to a problem and choosing one alternative from among the set. Managerial decision making involves four steps, which are accurately identifying problems, generating several possible solutions, choosing the solution that will be most effective under the circumstances, and implementing and evaluating the chosen course of action.

Analyze the growth of franchising and its advantages and disadvantages.

Franchising has grown tremendously since the mid-1970s. The franchisor's major advantage in franchising is fast and well-controlled distribution of products with minimal capital outlay. In return, the franchisee has the opportunity to open a business with limited capital, to make use of the business experience of others, and to sell to an existing clientele. For this, the franchisee usually must pay both an initial franchise fee and a continuing royalty based on sales. He or she also must follow the dictates of the franchise with regard to operation of the business. Worldwide business opportunities are expanding for small businesses. The SBA assists small-business owners in penetrating foreign markets. The next century will present unique challenges and opportunities for small-business owners.

Describe the advantages and disadvantages of sole proprietorships.

In a sole proprietorship, all business profits become the property of the owner, but the owner is also personally responsible for all business debts. A successful sole proprietorship can be a great source of pride for the owner. When comparing different types of business ownership, the sole proprietorship is the simplest form of business to enter, control, and leave. It also pays no special taxes. Perhaps for these reasons, 72 percent of all American business firms are sole proprietorships. Sole proprietorships nevertheless have disadvantages, such as unlimited liability and limits on one person's ability to borrow or to be an expert in all fields. As a result, this form of ownership accounts for only 4 percent of total revenues when compared with partnerships and corporations.

Explain the different types of partners and the importance of partnership agreements.

Like sole proprietors, general partners are responsible for running the business and for all business debts. Limited partners receive a share of the profit in return for investing in the business. However, they are not responsible for business debts beyond the amount they have invested. Regardless of the type of partnership, it is always a good idea to have a written agreement (or articles of partnership) setting forth the terms of a partnership.

Define what management is.

Management is the process of coordinating people and other resources to achieve an organization's goals. Managers are concerned with four types of resources—material, human, financial, and informational.

Identify the key management skills of successful managers.

Managers need a variety of skills in order to run a successful and efficient business. Conceptual skills are used to think in abstract terms or see the "big picture." Analytic skills are used to identify problems correctly, generate reasonable alternatives, and select the "best" alternatives to solve problems. Interpersonal skills are used to deal effectively with other people, both inside and outside an organization. Technical skills are needed to accomplish a specialized activity, whether they are used to actually do the task or to train and assist employees. Communication skills are used to speak, listen, and write effectively.

Describe the four basic management functions: planning, organizing, leading and motivating, and controlling.

Managers perform four basic functions, which do not occur according to a rigid, preset timetable. At any time, managers may engage in a number of functions simultaneously. However, each function tends to lead naturally to the next. Managers engage in planning—determining where the firm should be going and how best to get there. One method of planning that can be used is SWOT analysis, which identifies and evaluates a firm's strengths, weaknesses, opportunities, and threats. Three types of plans, from the broadest to the most specific, are strategic, tactical, and operational. Managers also organize resources and activities to accomplish results in an efficient and effective manner, and they lead and motivate others to work in the best interests of the organization. In addition, managers control ongoing activities to keep the organization on course. There are three steps in the control function: setting standards, measuring actual performance, and taking corrective action.

Explain the different types of leadership.

Managers' effectiveness often depends on their styles of leadership—that is, their ability to influence others, either formally or informally. Autocratic leaders are very task-oriented; they tell their employees exactly what is expected from them and give them specific instructions on how to do their assigned tasks. Participative leaders consult their employees before making decisions and can be classified into three groups: consultative, consensus, and democratic. Entrepreneurial leaders are different depending on their personalities, but they are generally enthusiastic and passionate about their work and tend to take the initiative.

Distinguish among the various kinds of managers in terms of both level and area of management.

Managers—or management positions—may be classified from two different perspectives. From the perspective of level within the organization, there are top managers, who control the organization as a whole, middle managers, who implement strategies and major policies, and first-line managers, who supervise the activities of operating employees. From the viewpoint of area of management, managers most often deal with the areas of finance, operations, marketing, human resources, and administration.

Describe the advantages and disadvantages of a corporation.

Perhaps the major advantage of the corporate form is limited liability—stockholders are not liable for the corporation's debts beyond the amount they paid for its stock. Other important advantages include ease of raising capital, ease of transfer of ownership, perpetual life, and specialized management. A major disadvantage of a large corporation is double taxation: All profits are taxed once as corporate income and again as personal income because stockholders must pay a personal income tax on their dividend income. Other disadvantages include difficulty and expense of formation, government regulation, conflict within the corporation, and lack of secrecy.

Examine special types of businesses, including S corporations, limited-liability companies, and not-for-profit corporations.

S corporations are corporations that are taxed as though they were partnerships but that enjoy the benefit of limited liability. To qualify as an S corporation, a number of criteria must be met. An LLC is a form of business ownership that provides limited liability and has fewer restrictions when compared to a regular corporation or an S corporation. LLCs also avoid the double taxation imposed on most corporations. When compared with a regular corporation or an S corporation, an LLC is more flexible. Not-for-profit corporations are formed to provide social services and to improve communities and change lives rather than to earn profits.

Assess the contributions of small businesses to our economy.

Small businesses have been responsible for a wide variety of inventions and innovations, some of which have given rise to new industries. Historically, small businesses have created the bulk of the nation's new jobs. Further, they have mounted effective competition to larger firms. They provide things that society needs, act as suppliers to larger firms, and serve as customers of other businesses, both large and small.

Identify the people who start small businesses and the reasons why some succeed and many fail.

Such personal characteristics as independence, desire to create a new enterprise, and willingness to accept a challenge may encourage individuals to start small businesses. Various external circumstances, such as special expertise or even the loss of a job, also can supply the motivation to strike out on one's own. Poor planning and lack of capital and management experience are the major causes of small-business failures.

Explain how the Small Business Administration helps small businesses.

The Small Business Administration (SBA) was created in 1953 to assist and counsel the nation's millions of small-business owners. The SBA offers management courses and workshops; managerial help, including one-to-one counseling through SCORE; various publications; and financial assistance through guaranteed loans and SBICs. It places special emphasis on aid to minority-owned businesses, including those owned by women.

Describe the advantages and disadvantages of operating a small business.

The advantages of smallness in business include the opportunity to establish personal relationships with customers and employees, the ability to adapt to changes quickly, independence, and simplified record keeping. The major disadvantages are the high risk of failure, the limited potential for growth, and the limited ability to raise capital.

Describe how organizations benefit from total quality management.

Total quality management (TQM) is the coordination of efforts directed at improving customer satisfaction, increasing employee participation, strengthening supplier partnerships, and facilitating an organizational atmosphere of continuous quality improvement. Another tool used for TQM is benchmarking, which involves comparing and evaluating the products, processes, or management practices of another organization that is superior in some way in order to improve quality. The five basic steps in benchmarking are identifying objectives, forming a benchmarking team, collecting data, analyzing data, and acting on the results. To have an effective TQM program, top management must make a strong, sustained commitment to the effort and must be able to coordinate all the program's elements so that they work in harmony. Benefits of TQM include lower operating costs, higher return on sales and on investment, and an improved ability to use premium pricing rather than competitive pricing.

Discuss the purpose of a joint venture and syndicate.

Two additional forms of business ownership—the joint venture and a syndicate—are used by their owners to meet special needs. A joint venture is formed when two or more groups form a business entity in order to achieve a specific goal or to operate for a specific period of time. Once the goal is reached, the period of time elapses, or the project is completed, the joint venture is dissolved. A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires large amounts of capital. Like a joint venture, a syndicate is dissolved as soon as its purpose has been accomplished.

Define sole proprietorship

a business that is owned (and usually operated) by one person

Define business plan

a carefully constructed guide for the person starting a business

Define alien corporation

a corporation chartered by a foreign government and conducting business in the United States

Define foreign corporation

a corporation in any state in which it does business except the one in which it is incorporated

Define domestic corporation

a corporation in the state in which it is incorporated

Define not-for-profit corporation

a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit

Define S corporation

a corporation that is taxed as though it were a partnership

Define open corporation

a corporation whose stock can be bought and sold by any individual

Define closed corporation

a corporation whose stock is owned by relatively few people and is not sold to the general public

Define dividend

a distribution of earnings to the stockholders of a corporation

Define limited liability

a feature of corporate ownership that limits each owner's financial liability to the amount of money that he or she has paid for the corporation's stock

Define leveraged buyout

a financing method that uses borrowed money to pay for the company that is being taken over

Define limited-liability company (LLC)

a form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership

Define Small Business Administration (SBA)

a governmental agency that assists, counsels, and protects the interests of small business in the United States

Define SCORE Association

a group of businesspeople who volunteer their services to small businesses through the SBA

Define unlimited liability

a legal concept that holds a business owner personally responsible for all the debts of the business

Define proxy

a legal form listing issues to be decided at a stockholders' meeting and enabling stockholders to transfer their voting rights to some other individual or individuals

Define franchise

a license to operate an individually owned business as though it were part of a chain of outlets or stores

Define first-line manager

a manager who coordinates and supervises the activities of operating employees

Define middle manager

a manager who implements the strategy and major policies developed by top management

Define administrative manager

a manager who is not associated with any specific functional area but who provides overall administrative guidance and leadership

Define financial manager

a manager who is primarily responsible for an organization's financial resources

Define marketing manager

a manager who is responsible for facilitating the exchange of products between an organization and its customers or clients

Define operations manager

a manager who manages the systems that convert resources into goods and services

Define human resources manager

a person charged with managing an organization's human resources programs

Define franchisee

a person or organization purchasing a franchise

Define limited partner

a person who invests money in a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership

Define stockholders

a person who owns a corporation's stock

Define contingency plan

a plan that outlines alternative courses of action that may be taken if an organization's other plans are disrupted or become ineffective

Define benchmarking

a process used to evaluate the products, processes, or management practices of another organization that is superior in some way in order to improve quality

Define hostile takeover

a situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger

Define tactical plan

a smaller-scale plan developed to implement a strategy

Define objective

a specific statement detailing what an organization intends to accomplish over a shorter period of time

Define mission

a statement of the basic purpose that makes an organization different from others

Define syndicate

a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital

Define operational plan

a type of plan designed to implement tactical plans

Define general partner

a voluntary association of two or more persons to act as co-owners of a business for profit

Define partnership

a voluntary association of two or more persons to act as co-owners of a business for profit

Define joint venture

an agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time

Define corporation

an artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts

Define goal

an end result that an organization is expected to achieve over a one- to ten-year period

Define franchisor

an individual or organization granting a franchise

Define strategic plan

an organization's broadest plan, developed as a guide for major policy setting and decision making

Define plan

an outline of the actions by which an organization intends to accomplish its goals and objectives

Define top manager

an upper-level executive who guides and controls the overall fortunes of an organization

Define core competencies

approaches and processes that a company performs well that may give it an advantage over its competitors

Define planning

establishing organizational goals and deciding how to accomplish them

Define small-business institutes (SBIs)

groups of senior and graduate students in business administration who provide management counseling to small businesses

Define participative leadership

leadership style in which all members of a team are involved in identifying essential goals and developing strategies to reach those goals

Define venture capital

money that is invested in small (and sometimes struggling) firms that have the potential to become very successful

Define small business

one that is independently owned and operated for profit and is not dominant in its field

Define entrepreneurial leadership

personality-based leadership style in which the manager seeks to inspire workers with a vision of what can be accomplished to benefit all stakeholders

Define small-business investment companies (SBICs)

privately owned firms that provide venture capital to small enterprises that meet their investment standards

Define technical skills

specific skills needed to accomplish a specialized activity

Define common stock

stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others

Define preferred stock

stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners

Define autocratic leadership

task-oriented leadership style in which workers are told what to do and how to accomplish it without having a say in the decision-making process

Define interpersonal skills

the ability to deal effectively with other people

Define analytic skills

the ability to identify problems correctly, generate reasonable alternatives, and select the "best" alternatives to solve problems

Define communication skills

the ability to speak, listen, and write effectively

Define conceptual skills

the ability to think in abstract terms

Define decision making

the act of choosing one alternative from a set of alternatives

Define franchising

the actual granting of a franchise

Define corporate officers

the chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board of directors

Define directing

the combined processes of leading and motivating

Define merger

the combining of two corporations or other business entities to form one business

Define total quality management (TQM)

the coordination of efforts directed at improving customer satisfaction, increasing employee participation, strengthening supplier partnerships, and facilitating an organizational atmosphere of continuous quality improvement

Define strategic planning process

the establishment of an organization's major goals and objectives and the allocation of resources to achieve them

Define organizing

the grouping of resources and activities to accomplish some end result in an efficient and effective manner

Define SWOT analysis

the identification and evaluation of a firm's strengths, weaknesses, opportunities, and threats

Define management

the process of coordinating people and other resources to achieve the goals of an organization

Define controlling

the process of evaluating and regulating ongoing activities to ensure that goals are achieved

Define leading

the process of influencing people to work toward a common goal

Define motivating

the process of providing reasons for people to work in the best interests of an organization

Define stock

the shares of ownership of a corporation

Define board of directors

the top governing body of a corporation, the members of which are elected by the stockholders

Define small-business development centers (SBDCs)

university-based groups that provide individual counseling and practical training to owners of small businesses