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Chapter 8

Chapter 8 and corporate notes ADMS 1000

3 Pages

Administrative Studies
Course Code
ADMS 1000
Peter Khaiter

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Chapter 8 and corporate notes Forms of business ownership Sole proprietorship  Owned by a single person  Limited life span ( they die with the owner)  Have limited liability to obtain capital and the owner bears all debt and profit Partnership  Owner by 2 or more people  Ability to pool capital (advantage) Corporation  Corporation are the dominate form of organization, it is a separate legal entities, does not die with the owner of the business. People can only lose what they put into the organization.  Less than 20% of businesses are corporations but they account for 90% of all business revenues (in the US)  Stockholders are the owners of public corporations  Advantages (relative to sole proprietorships and partnerships): o Access to capital ( sell stocks and bonds) o Infinite life o Limited liability o Transferability and liquidity of ownership  Disadvantages: o Double taxation ( pay personal taxes on dividends & corporations pay tax on profit they make) o Costs and disclosure (cost of hiring accountants and others are high) o Principal/Agent Problem – GOVERNANCE ( they don’t feel they own the business) Governance  The system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.  Set objectives, monitor what people are doing inside the company ( employees) People in Business 1. Shareholders- own the firm, suffer loses when fails 2. Directors- hire oversee, evaluate and fire officers. Represent interest of shareholder 3. Officers- CEOS top level of management, responsible for day to day operation of firm 4. Employees- dedicate the human capital into the firm Separation of ownership and control  Although shareholders own the firm, it is the officers who control the firm and make crucial decisions  Investors could not make daily decisions needed so firms hire managers to do so  Shareholders a
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