Transcript Chapter 6
Chapter 6 BUISNESS ORGANIZATION AND FINANCE Types of Industries Primary Industries resource extraction E.g. Fishing, Hunting, Farming, Mining, Forestry… Secondary manufacturing E.g. Mills, Assembly Plants, Factories, Breweries… Service Industries Industries Services E.g. Medical Clinics, Public Transport, Schools, Legal Offices… Types of Companies The Sole Proprietorship A business owned and operated by a single person. Though other people may be employed all decision are made by the owner. Proprietors are sorely responsible for all debt There is unlimited personal liability on the owner. -Which means the proprietors personal assets can be seized to pay outstanding business debt. Often find it difficult to raise money or obtain loans. Types of Companies Continued The Partnership A business owned and operated by two or more people. All partners are bound by a partnership agreement. Usually all partners partake in management. All partners are subject to unlimited personal liability for business losses, however the liability is both joint and several. -Joint Liability entails that all partners are together liable for debt. -Several Liability entails that if one partner fails to pay debt, the other partner(s) would be held liable. Advantages include: pooling talent, pooling resources and capital as well as sharing burdens. Usually easier for a partnership to obtain loans and raise money Types of Companies Continued The Corporation or Limited Company All assets are divided equally into units called shares and owners are known as shareholders. There are private and public corporations -The shares of a private corporation may only be sold or traded if approved by the corporations board of directors. - The shares of a public corporation may be sold or traded freely within the supervision of th provincial securities commission or corresponding government. Any given corporation can only have a few thousand share holders. Profits that are not reinvested into the company are distributed to the share holders in the form of dividends. Shareholders benefit from limited personal liability, which is restricted to the amount they have invested in the company. Substantially larger government fees are imposed on corporations. Types of Companies Continued The Government Enterprise Owned by the federal, municipal or provincial government. Offer service that the private sector won’t due to low profitability. May be set up to increase, employment or competition. Canada has more government owned businesses that the U.S. Types of Companies Continued The Co-operative Enterprise Owned equally by it’s members. Need to have a common goal relationship or economic purpose. There are Marketing, Retail, Financial and Service co-operatives. the - A Marketing Co-operative is created to sell the products of members at best possible price - A Retail Co-operative is created to provide goods to members at reduced prices. - A Financial Co-operative is created to arrange saving and loans to its members at above average rates. - A Service Co-operative is created to provide special services. (e.g. medical insurance or housing) There is a limited ability to raise capital Profits not reinvested in the company are paid to the members in the form of a patronage Types of Companies Continued The Non profit and Charitable Organization Must be registered as a non-profit or Charitable organization Not Permitted to generate profit Gain income and tax exemptions from the government Must raise money to cover operating cost Assortments of Business Small Businesses Very limited in the size and scope of their operations Remain efficient through completion The CFIB (Canadian Federation of Independent Business) defines a small business as having less than 50 employees Medium Businesses Less Limited in there operations The CFIB defines a medium business as having 50-499 employees Large Businesses Defined by the CFIB as having 500+ employees Very little limitation in the scope of their operations Business Operations Horizontal Purchasing or merging with a firm working in the same type of product or service. E.g. Chrysler Corporation merged with Daimler-Benz to form DailmerChrysler AG in 1998 Vertical Integration Integration Purchasing or merging with a firm that in successive stages of production or consumption. E.g. Rogers Communications bought the Toronto Blue Jays Business Operations Continued Corporate Alliances Firms collaborating on projects or developments. E.g. Dell Computer Corp. made an alliance with IBM, in which they share technology and integration software. Corporate Concentration Large amounts of business activity concentrated into a handful of corporations. Also include holding companies, whose sole purpose is to acquire large blocks of shares in order to influence or control them. E.g. The most recognized holding company in Canada, Argus Corporation headed by Conrad Black Multinational Corporations in Global Economy Throughout growth and expansion these companies have sold a portion of their output abroad, licenses foreign companies to use their manufacturing process or established branches or plants Manager base their financial, production and marketing decisions based on global concerns. Become capable of exploiting cheap labor, cheap resources and low environmental standards in other countries to lower operating costs. Gives them free access to other markets. Stability is greatly increased by geographic diversity. E.g. Political upheavals or market fluctuations don’t effect them as badly. It is argued that drain of expertise (brain drain) has a disruptive effect on an economy. Different forms of securities Bonds Corporate bonds are fixed debt which are usually paid back in 10, 15 or 20 year. The buyer get regular interest payments. Bondholders are not considered partial owners. Bond can be resold at any time. Shares Companies can issue additional shares to raise funds. Though it lowers the value of the companies shares The book value of a share is the value at which it was originally issued. The market value is the price or value that a share an be sold for in the market. Securities market and trading Publicly traded stock are sold in the stock market. The building they are traded in is the stock exchange. The largest stock exchanges in the world are in New York, Tokyo and London. The NASDAQ (National Association of Securities Dealers Automated Quotation) founded in 1971, is one of the largest stock markets in the world. NASDAQ brokers, called market makers, trade stocks on behalf of their clients. The TSX (Toronto Stock exchange) has stockbrokers who act on behalf of their clients making investments and trades. Mutual Funds are amassed and managed by expert fund managers on behalf of the client without him/her needing to get involved. Commodities Market A commodity market is a place in which commodities, either processed or raw, are traded in bulk. There are spot markets and future markets. Spot Markets involve goods being traded immediately. Future markets involve the purchase of good that haven’t been grown, mined or produced yet at prices fixed in advance. Understanding Stock Market Indicators The Dow Jones Industrial Average is the most widely quoted indicator in th U.S The Dow is calculated daily based on the closing prices of 30 blue chip (safe or stable) companies, which represent all key sectors of the economy. The TSX incorporates the Standard & Poor’s Global Classification, giving investors an accurate comparison of the performance of Canadian indices with those around the world.