BUAD110 Chapter Notes - Chapter 3: Tax Inversion, Sole Proprietorship, Business Ethics
1 Jun 2018
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CH 3 Book Notes: Business Governance, Ethics, and Social Responsibility
Learning Objective 1
● Business governance structures
○ Sole proprietorship: individausl are responsible for running the business, liable for
business debt
○ Partnership: involves two or more people linked together in a partnership
agreement in running the business, personal liability issues arise, easier time
obtaining funds
● The vast majority of dollar volume business in the US is done via the corporate form of
business organization
● Corporation itself is a legal “person,” or entity, separate from the individuals involved in
setting it up or running it
○ Responsible for its own debts or liabilities
○ A wall exists between corporations and its shareholders taht protect them from
any personal liability for company debt or activities, helpful in raising capital
○ Treated as separate tax entities
○ Dividends paid are subject to some level of double taxation
Learning Objective 2
● All corporations are required to have a board of directors
● Board of directors: responsible for all major policy decisions of the corporation
● Inside directors: already work for the corporation, such as CEO
● Outside directors: not employed as officers of the company
○ Operate under a legal doctrine known as the business judgement rule
Learning Objective 3
● The shareholder model of business governance operates from the basic premise that the
purpose of a business is to maximize financial returns for its shareholders
○ If it’s legal and best for the company shareholders to re-incorporate or engage in
a “tax inversion,” it should be done
Learning Objective 4
● Efforts between shareholders and officers or directors in large corporations are being
made to better align the financial interests of shareholders and officers or directors
● Various laws and regulations help to reduce conflicts of interest between corporate
ownership and control
Learning Objective 5
● Stakeholder model of business governance: takes the perspective that businesses exist
to benefit not just their shareholders but also various groups that have a meaningful
stake in their operations
● Special efforts to help local communities in which they operate
Document Summary
Ch 3 book notes: business governance, ethics, and social responsibility. Sole proprietorship: individausl are responsible for running the business, liable for business debt. Partnership: involves two or more people linked together in a partnership agreement in running the business, personal liability issues arise, easier time obtaining funds. The vast majority of dollar volume business in the us is done via the corporate form of business organization. Corporation itself is a legal person, or entity, separate from the individuals involved in setting it up or running it. Responsible for its own debts or liabilities. A wall exists between corporations and its shareholders taht protect them from any personal liability for company debt or activities, helpful in raising capital. Dividends paid are subject to some level of double taxation. All corporations are required to have a board of directors. Board of directors: responsible for all major policy decisions of the corporation. Inside directors: already work for the corporation, such as ceo.
