Chapter 2: Business Organization

Vocabulary(1) Proprietorship Proprietorship –ownership Stockholder Stockholder –One who owns stock in a company Partnership Partnership –Unregistered business where two or more people agree to share, not necessarily equally, in the risks and profits of the organization Entity Entity –Something that has a real and separate existence Bankruptcy Bankruptcy –State of being declared by a court of law not to be capable of paying its debts

Vocabulary (2) Joint-stock company Joint-stock company –Public company whose shares are owned by very many people Dividend Dividend –Percentage of profits paid to shareholders Bylaw Bylaw –A law or rule governing the internal affairs of an organization Treasurer---person who looks after the money or finance of a club or society; Treasurer---person who looks after the money or finance of a club or society; Comptroller---financial controller; Comptroller---financial controller; Company limited---CO ， LTD ( 有限责任公司） Company limited---CO ， LTD ( 有限责任公司） Inc----Incorporated Corporation----Corp Inc----Incorporated Corporation----Corp

1.Introduction The majority of business organizations are corporations, others are general partnerships, limited partnerships, and sole proprietorships. Less common are professional corporations, Joint-stock companies, business trust and joint venture. The majority of business organizations are corporations, others are general partnerships, limited partnerships, and sole proprietorships. Less common are professional corporations, Joint-stock companies, business trust and joint venture.

2. Sole Proprietorship Advantage----the owner has exclusive control over its operations. Advantage----the owner has exclusive control over its operations. Disadvantage----firstly, the owner is exposed to unlimited liability; secondly, it is normally not in the best position to raise large sums of money; thirdly, its lack of continuity. Disadvantage----firstly, the owner is exposed to unlimited liability; secondly, it is normally not in the best position to raise large sums of money; thirdly, its lack of continuity.

3. General Partnership –Definition----it is an association of two or more persons to carry on, as co-owners, a business for profit. Unlike a corporation, it is not a legal entity. All partners in a general partnership have unlimited liability; it has a voice in the management. –Formation----it does not require a formal written agreement, nonetheless, it is desirable to have an agreement in writing, referred to as articles of partnership. –Termination----be dissolved by act of the parties or by operational of law. Dissolution is not the complete end of partnership activity until the partnership affairs are completed.

4. Limited Partnership Limited partnership----one or more partners in the limited partnership have limited liability-- their liability is limited to the extent of their investment in the partnership; it has no control over the everyday management of the partnership. Limited partnership----one or more partners in the limited partnership have limited liability-- their liability is limited to the extent of their investment in the partnership; it has no control over the everyday management of the partnership. It is usually formed for investment purpose because the partners enjoy tax advantages. It is usually formed for investment purpose because the partners enjoy tax advantages. Limited partnership involves passive investors who are like shareholders in a corporation. Limited partnership involves passive investors who are like shareholders in a corporation.

5. Joint Stock Company (rarely seen) It is an unincorporated business enterprise with the ownership interest represented by shares of stock. It is an unincorporated business enterprise with the ownership interest represented by shares of stock. These companies can be created with little formality. It does not require chartering requirements and initial capital outlay. These companies can be created with little formality. It does not require chartering requirements and initial capital outlay. Disadvantage----the shareholders are personally liable for all the association ’ s obligations. Conversely, they share the profits in proportion to their controlling interest in the company Disadvantage----the shareholders are personally liable for all the association ’ s obligations. Conversely, they share the profits in proportion to their controlling interest in the company

6. Corporations (1) Features of Corporation Features of Corporation –It is a separate legal entity for all purpose; –It is not mortal, corporation has a perpetual existence; –The owners of the corporation, called shareholders, enjoy limited liability; –It is the ease of transferring ownership interests; –The separation of ownership from management; –It pays taxes on its earnings and stockholders pay tax on those earnings ； (undesirable) –The corporate form requires compliance with an array of formalized procedure.

6. Corporations (2) Types of Corporations Types of Corporations –Public corporations are established by the government. For example, U.S postal service. –Quasi-public corporations are public service companies, such as public utilities. (water, gas) –Private corporations are those established for private interests and include bulk of existing corporations. Closely held corporation----owned by one or a few shareholders. It does not publicly offer their stock (fund company) Closely held corporation----owned by one or a few shareholders. It does not publicly offer their stock (fund company) Public held corporation----it has a number of unrelated shareholders. They do not actively manage the company. The share of stock are traded freely on stock exchange Public held corporation----it has a number of unrelated shareholders. They do not actively manage the company. The share of stock are traded freely on stock exchange

6. Corporations (3) Corporate Management Corporate Management –Shareholders elect a board of directors to manage the corporation. The board delegates the day to day operations to officers.

6. Corporations (4) Shareholders Shareholders –Common stockholders----it has voting rights whereas preferred stockholders normally can vote only on extraordinary matters; –Preferred stockholders----they are entitled to received their dividends before common stockholders. On dissolution, they are entitled to distribution of assets before common stockholders. Dividends Dividends –Dividends are portions of corporate earnings distributed to shareholders.

Business Organizations Ownership Management Control Liability Exposure Duration Tax-paying Entity Sole- proprietorship SelfSelfUnlimitedLimitedYes Partnership(general/limited)PartnersPartnersUnlimited/limitedLimitedYes/No Corporation Sharehold ers Board of directors/ officersLimitedPerpetualYes

7. Multinational corporation (MNC)(1) It is used to identify firms which have extensive involvement in international business. It engages in foreign direct investment and owns or controls value- adding activities in more than one country. It is used to identify firms which have extensive involvement in international business. It engages in foreign direct investment and owns or controls value- adding activities in more than one country. It can be generally be applied to most of the world ’ s larger, well-known businesses. It can be generally be applied to most of the world ’ s larger, well-known businesses.

7.. Multinational corporation (MNC)(2) Home replication corporation---in this approach, a firm utilizes the core competency or firm-specific advantage it developed at home as its main competitive weapon in the foreign markets that it enters. (Mercedes Benz) Home replication corporation---in this approach, a firm utilizes the core competency or firm-specific advantage it developed at home as its main competitive weapon in the foreign markets that it enters. (Mercedes Benz) Multidomestic corporation---it views itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market. In addition, each of these subsidiaries is free to customize its products, its marketing campaigns, and its operations techniques to best meet the needs of its local customers. Multidomestic corporation---it views itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market. In addition, each of these subsidiaries is free to customize its products, its marketing campaigns, and its operations techniques to best meet the needs of its local customers.

7.. Multinational corporation (MNC)(3) ----A global corporation views the world as a single marketplace and strives to create standardized goods and services which will meet the need of customers worldwide (Apple electronic stuff) ----A transnational corporation seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness. (IKEA)

11-18 Figure 11.1 Strategic Alternatives Global Strategy Firm views the world as single marketplace. Goal is to create standardized products. Home Replication Firm uses core competency or firm- specific advantage Multidomestic Strategy Firm operates as a collection of relatively independent subsidiaries Transnational Strategy Firm combines benefits of global scale efficiencies with benefits of local responsiveness Low High Pressures for Local Responsiveness/Flexibility Pressures for Global Efficiencies High Low

Comprehension questions (Page 22)