Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form
Business undergo through various forms that include sole proprietorship, partnership, and a corporation. A proprietorship is owned by one person and has three key advantages that include easy and inexpensive formation, subject to few regulations, and its income is taxed at the owner’s personal income tax rate instead of the corporate tax rate. However, the proprietorship suffer from certain drawbacks that include unlimited liability to the owner, the life of the business is limited to the life of the founder, and limited capital. A partnership involves two or more people coming together to run an unincorporated business. The advantages of a partnership include ability to raise more capital than a proprietorship, sharing of losses and the ability of the limited partners to limit their liabilities. However, general partners are liable for all the firms’ debt and exercise control while limited partners have a limited liability but give up the control of the firm. Partners in a business with a rapid growth may find it difficult to raise enough capital and therefore may convert their business into a corporation. A corporation is a legal person. A corporation has three advantages that include perpetual life, ease of transfer of shares, and limited liability. However, a corporation faces drawbacks that include many legal formalities including developing a charter and double taxation where taxes are paid on the company earnings, and the shareholders pay income taxes on dividend income.
What should be the primary objectives of managers?
The primary objective for managers is to maximize shareholders wealth as measured by the dividend payments and an increase in the share price.
Do firms have any responsibility to the society at large
Firms have a responsibility to the society in which they operate. Firms should be socially responsible and should keep off from engaging in activities that may harm the society such as pollution, or engaging in fraudulent financial reporting.
Is stock maximization good or bad for society?
Generally, stock maximizing is beneficial to the society because most of the actions that maximize shareholders wealth also maximize shareholders wealth. When managers maximize the value of the stock, they benefit shareholders who are also members of the society. Consumers benefit from profitable companies that provide them goods and services at a fair price. When managers maximize the stock price they create, more jobs that benefits employees.
Should firms behave ethically?
Firms should behave ethically because people do not want to deal with a firm that has questionable business practices. For example, Arthur Andersen the audit firm that was involved in the Enron scandal failed because of damaged reputation even though the court held that they were innocent.
What are some of the different types of markets?
The various types of markets that include:
Physical asset markets where real assets such as wheat, computers, and real assets are traded and financial asset where financial instruments such as bonds, shares, and derivatives are traded.
Spot market and future markets. In spot markets, assets are sold on the spot with delivery being in a few days. Future markets terms are agreed today but the delivery is in the future.
Money markets deals with highly liquid debt securities with maturities of less than one year. Capital markets deal with bonds and equities with maturities longer than one year.
Mortgage markets provide loans on commercial, industrial, agricultural, and residential real estate. Consumer credit markets provide credit to household for education, cars, and travel.
World, regional, national and local markets
Primary markets help companies to raise capital by issuing securities to the investing public. Secondary markets allow investors to trade in existing securities
Private markets transactions are negotiated directly between two parties. Public markets are subject to the exchange rules and transactions and contracts are standardized.
