paraphrase

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 is three principal form of organization.

• Proprietorship: Which is an unincorporated business owned by one individual.

• Partnership: Exists whenever two or more persons or entities associate to conduct a noncorporate business for profit.

The Proprietorship and Partnership have a similar advantage and disadvantage.

Advantage:

1. It has an easy process and not expensive formed.

2. The government regulations for these forms are few.

3. The Income is not subject to corporate tax but is treated as part of proprietor's personal income.

Disadvantages:

1. It could be difficult for the proprietor's in these kind of form to obtained the capital need to growth.

2. The proprietor and the partners are liable for the company’s liabilities, which can affect their personal property. Regarding partnership, they could avoid that by the limited partner so one will be a general partner and have unlimited liability, and returns. The second one will be a limited partner and have limited liability, and returns.

3. The life of the company in case of proprietorship is limited to the life of its founder.

4. Some times a problem could appear between the partners.

• Corporation: A legal entity created under state laws, and it is separate and distinct from its owners and managers.

Corporation’s advantages:

1. The corporation has an unlimited life and its separate from its owners and managers.

2. The transfer of ownership interests is easier than the Proprietorship and Partnership.

3. It has a limited liability up to the amount invested in the organization.

4. It is relatively easy for a corporation to get capital markets for its growth plans.

Corporation’s disadvantages:

1. A corporation is subject to double taxation system. Therefore, it is subject to a corporation tax and earnings paid out as dividends to its shareholders are taxable as income of the shareholders.

2. complex and time-consuming set of regulations as compared to partnerships and proprietorship. That need to prepare the charter and the bylaws.

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 operate regarding their manager’s concern as well as their employees benefit and good work environment including laws and rules, also act in an ethical manner and the good for their communities and society.

2- Is stock price maximization good or bad for society?

It’s good because of three reasons:

1. When managers take an action that maximizes the stock price that will improve the quality of life for ordinary citizens.

2. Consumer benefit because stock price maximization needs efficient and low-cost business that produces high-quality products and services at low costs.

3. Employees benefit because stock price maximization also grows and add more employees and benefiting the society.

3- Should firms behave ethically?

Yes, in many cases the managers are focusing on the stock price maximization that could lead them to legal and ethical issues because the short term profitability linked with their compensations. Also, it’s impossible to take legal and ethical actions to maximize the stock price in the short term without harming the long term. Therefore, many managers will break many rules to maximize the stock price. The company is based on both the future and present cash flows. However, because of these reasons could lead them to a poor quality of products, also, could lead to legal issues can damage the image of the company.

N) What are some different types of markets?

1. Physical asset market: are those for such product as wheat, autos, real state, computer, and machinery.

2. Financial asset markets: deal with stock, bonds, notes, mortgages, derivatives, and other financial instruments.

3. Spot market & Future marker: markets where assets are being bought or sold for on-the-spot delivery (literally, within a few days) or for delivery at some future date, such as 6 month or a year into the future.

4. Money market: the market for short-term, highly liquid debt securities.

5. Capital market: the market for corporate stocks and debt maturing more than a year in the future.

6. Mortgage markets: deal with loans on residential, agricultural, commercial, and industrial real state.

7. Consumer Credit markets: involve loans for autos, appliances, education, vacations, and so on.

8. World, national, regional and local markets: depending on an organizations size and scope of operations, it may be able to borrow or lend all around the world, or it may be confined to a strictly local, even neighborhood, market.

9. Primary markets: are the markets in which corporation raise new capital.

10. Initial public offering (IPO) market: is a subset of the primary market.

11. Secondary markets: are markets in which existing, already outstanding securities are traded among investors.

12. Private markets: where transaction are worked out directly between two parties.

13. Public markets: where standardized contracts are traded on organized exchanges.