Chapter 1
B) 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.
There are three principal form of organization.
Proprietorship
Partnership
Corporation
Advantage of Proprietorship and Partnership are similar.
No complex hierarchy decision making is relatively easy process
Lesser legal regulations apply
Income is not subject to corporate tax but is treated as personal income of the participants.
Disadvantages:
Capital access in case of both forms of ownership needed for growth of the organization is relatively difficult as compared to a corporation.
The proprietor and the partners are liable for the company’s liabilities.
The life of the organization in case of proprietorship is limited to the life of its founder
There is always a possibility of fall out between the company partners.
Corporation’s advantages:
It is relatively easy for a corporation to access capital markets for its growth plans.
The shareholders have a limited liability up to the amount invested in the organization.
A corporation has an unlimited life.
The ownership shares in the company can be transferred to others interested in acquiring these shares.
Corporation’s disadvantages:
A corporation is subject to a relatively complex set of regulations as compared to partnerships and proprietorship.
A corporation is subject to double taxation system where it is subject to a corporation tax and again its dividends which are paid out to its shareholders are taxable as personal income of the shareholders.
D) What should be the primary objective of managers?
The primary objective of managers is stock holder wealth maximization.
1- Do firms have any responsibilities to society at large?
Companies should function in an ethical manner, including providing a safe environment for employees, abide by labor laws and respect the environment.
2- Is stock price maximization good or bad for society?
Stock price maximization requires companies to be as efficient as possible while producing quality goods and staying price competitive. I think it’s good for society, as it requires companies to do what’s best for their consumers in an effort to maintain or increase market share.
3- Should firms behave ethically?
Yes, studies have shown high correlation between long run profitability of a company and its ethics. If ethics takes a back seat when keeping corporate profits in mind then the results often are poor quality of products, which could lead to legal issues and hamper the image of the company.
N) What are some different types of markets?
Physical asset market
Financial asset markets
Spot market & Future marker
Money market
Capital market
Mortgage markets
Consumer Credit markets
World, national, regional and local markets
Primary markets
Secondary markets
Private markets
