chapter 3
sole proprietorship pros and cons
pros:
- easy startup and design
- low capital requirement
- The owner operates however and is entitled to profits
cons:
- raising funds and sustainability
- death = loss of business
- unlimited liability
Partnership pros and cons
pros:
- pooled resources
- multiple funding sources
- easy to form
cons:
- unlimited liability
- responsible for each other's decisions
- taxed as individuals
corporations pros and cons
pros:
- access to capital
- limited liability
- can operate without the owner
- owner transfer
cons:
- legal requirements
- large capital requirements
- governence
cooperative pros and cons
pros:
- shared profits
- voting
- members are owners
What is corporate governance?
Is the rules, practices, and procedures by which a company is controlled
What is the principal-agent problem?
The difference in interest between management and owners/shareholders.
Example: Volkswagen management faked emission test
results
Factors of good governance
1. Accountability: management takes responsibility for their decisions and is held liable.
2. fairness: all stakeholders and taken into consideration and are treated equitably
3. transparency: management doesn't withhold information from stakeholders
4. Stakeholder engagement: management engages with and is knowledgeable of stakeholder requirements
5. reliable leadership: managers can carry out tasks in pursuit of missions of the business in the best interest of stakeholder
groups involved in corporate governance
Shareholders: own the business and elect the board of directors
BOD: govern and oversee management such that managers carry out shareholder interest
Corporate officers: control and manage the company on a daily basis.
Employees: perform the actual work