Business Principle #2
horizontal merger
Combination of firms in the same industry
Types of Stockholders
Common stock represents the basic ownership interest in a corporation, but some firms also issue preferred stock. One key difference between the two types of stock involves voting rights; common stockholders normally have the right to vote in stockholders' meetings, while preferred stockholders do not
Disadvantages of Partnership
Unlimited Liability Potential for Disagreements Lack of Continuity Difficulty in Withdrawing from a Partnership
Users
members of the buying organization who will actually use the purchased product or service
Stock exchanges
secondary markets where already-issued securities are bought and sold by members
The financial system
the group of institutions in the economy that help to match one person's saving with another person's investment
external locus of control
the perception that chance or outside forces beyond your personal control determine your fate.
internal locus of control
the perception that you control your own fate
Common business ethical challenges
- Conflict of Interest - Honesty and Integrity - Whistle-Blowing - Loyalty versus Truth
Limited Liability Disadvantages-Limitation
-Complexity of Formation -Annual Franchise Tax -Foreign Status in Other States -Limits on Types of Firms that Can Form LLCs -Differences in State Laws
disadvantages of a franchise
-Costs -Lack of Control -Negative Halo Effect -Growth Challenges -Restrictions on Sale -Poor Execution
Advantages of Sole Proprietorship
-Ease of Formation -Retention of Control -Pride of Ownership -Retention of Profits -Possible Tax Advantage
Disadvantage of Corporation
-Expense and Complexity of Formation and Operation -Complications When Operating in More Than One State -Double Taxation of Earnings and Additional Taxes -More Paperwork, More Regulation, and Less Secrecy -Possible conflicts of interest
advantages of a franchise
-Less Risk -Training and Support -Brand Recognition -Easier Access to Funding
Advantage of Corporation
-Limited Liability -Permanence -Ease of Transfer of Ownership -Ability to Make Use of Specialized Management -Ability to Raise Large Amounts of Financial Capital
Limited Liability Company (LLC) Advantages
-Limited Liability -Tax Pass-Through -Simplicity and Flexibility in Management and Operation -Flexible Ownership
Characteristics of entrepreneurs
-vision -self-reliance -energy -confidence -tolerance of uncertainty - tolerance of failure
vertical merger
A combination of firms that are at different stages in the production of a good or service, creating a "buyer-seller" relationship.
Mergers
A corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.
Bonds
A formal debt instrument issued by a corporation or government entity.
business plan
A formal document that describes a business concept, outlines core business objectives, and details strategies and timelines for achieving those objectives.
Franchise
A franchise is a licensing arrangement under which one party (the franchisor) allows another party (the franchisee) to use its name, trademark, patents, copyrights, business methods, and other property in exchange for monetary payments and other considerations
LLC (Limited Liability Company)
A limited liability company (LLC) is a hybrid form of business ownership that is similar in some respects to a corporation while having other characteristics that are similar to a partnership. Like a corporation, a LLC is considered a legal entity separate from its owners. Also like a corporation—and as its name implies—an LLC offers its owners limited liability for the debts of their business. But it offers more flexibility than a corporation in terms of tax treatment; in fact, one of the most interesting characteristics of an LLC is that its owners can elect to have their business taxed either as a corporation or a partnership. Many states even allow individuals to form single-person LLCs that are taxed as if they were sole proprietorships.
Sole Proprietorship
A sole proprietorship is a business that is owned, and usually managed, by a single individual. As far as the law is concerned, a sole proprietorship is simply an extension of the owner. Company earnings are treated just like the owner's income; likewise, any debts the company incurs are considered to be the owner's personal debts.
Advantages of Partnership
Ability to Pool Financial Resources Ability to Share Responsibilities and Capitalize on Complementary Skills Ease of Formation Possible Tax Advantages
corporate philanthropy
All business donations to nonprofit groups, including money, products, and employee time.
code of ethics
Ethics refers to sets of beliefs about right and wrong, good and bad; business ethics involve the application of these issues in the workplace. Clearly, ethics relate to individuals and their day-to-day decision making. Just as clearly, the decisions of each individual can affect the entire organization.
Examples of code of ethics
Legal and unethical -Promoting high-calorie/low-nutrient foods with inadequate information about the risks -Producing products that you know will break before their time -Paying nonliving wages to workers in developing countries Legal and ethical -Producing high-quality products -Rewarding integrity -Leading by example -Treating employees fairly -Contributing to the community -Respecting the environment Illegal and Unethical -Embezzling money -Engaging in sexual harassment -Practicing collusion with competitors -Encouraging fraudulent accounting -Providing rock-bottom prices only to distributors in underserved areas -Collaborating with other medical clinics to guarantee low prices in low-income counties (collusion) Practicing collusion with competitors Encouraging fraudulent accounting
Disadvantages of Sole Proprietorship
Limited Financial Resources Unlimited Liability Limited Ability to Attract and Maintain Talented EmployeesHeavy Workload and Responsibilities Lack of Permanence
Savers
Persons who desire to conserve their monetary funds to the best of their ability.
code of conduct
a statement that guides the ethical behavior of a company and its employees
vision
an encompassing explanation of why the organization exists and where it's trying to head
LLP (Limited Liability Partnership)
another partnership arrangement that is attractive to partners who want to limit their personal risk. It is similar to a limited partnership in some ways, but it has the advantage of allowing all partners to take an active role in management while also offering all partners some form of limited liability. In other words, there's no need to distinguish between limited and general partners in an LLP.
Types of Entrepreneurs
classic, serial, social
Types of Stock
common and preferred
home-based businesses
conducted from the owner's home; can have an image which is just as professional as a large corporation
Corporation
corporation is a business entity created by filing a form (known in most states as the articles of incorporation) with the appropriate state agency, paying the state's incorporation fees, and meeting other requirements. (The specifics vary among states.) Unlike a sole proprietorship or a partnership, a corporation is considered to be a legal entity that is separate and distinct from its owners
Social responsibility
obligation of a business to contribute to society. The most socially responsible firms feature proactive policies that focus on meeting the needs of all their stakeholders—not just investors but also employees, customers, the broader community, and the environment.
Partnership
partnership is a voluntary agreement under which two or more people act as co-owners of a business for profit. As we'll see later in the chapter, there are several types of partnerships. In its most basic form, known as a general partnership, each partner has the right to participate in the company's management and share in profits—but also has unlimited liability for any debts the company incurs.
