The Economic Way of Thinking (3) - Companies

8/8/2019 The Economic Way of Thinking (3) - Companies

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LICEO CAMPESTRE DE PEREIRA



A producer is a maker of goods or provider of services

Most of the producers in a market economy are business organizations

,commercial or industrial enterprises and the people who work in them.They provide jobs and income that can be used for spending, investingand saving. Business organizations also pay taxes and help financegovernment services

The purpose of most business organizations is to earn a profit this isachieved when the products and services meet the needs and wants of the consumer



CORPORATIONS, MERGERS ANDMULTINATIONALS

PARTNERSHIPS: GENERAL, LIMITED,LIMITED LIABILITY

SOLE PROPRIETORSHIPS OR SOLE TRADERS



This is the most common type of business organization both inColombia and the USA. It isthe business organization owned and controlled by one person

ADVANTAGES DISADVANTAGES

Limited LifeThe business closes if the owner dies, retires orleaves for some other reason

Easy to open or close you only need some funds,license, a site permit and a legally registered name

Few regulations payment of employees accordingto law; business set in an area set for that

Freedom and control the owner makes his / herown decisions

Owner keeps profits

Limited LifeThe business closes if the owner dies, retires orleaves for some other reason

Unlimited liabilityThe business owner is responsible for all the

businesss losses and debts

Limited funds especially at start-up. This is one of the reasons why sole traders are more likely to fail



Identify two or three examples of business you might want to establish as soleproprietorships

Choose your favorite one and give it a name

How much money will it take to start the business. Detail each expense.

How much money will it take to run the business each month.Detail eachexpense make a 12 month forecast

Who will the customers be and how will you attract them?

Once the business is established, how much will it earn each month?Detail eachsource of income

How much profit will you earn?



Explain the relationship between the following terms in eachpair: Business organization proprietorship Limited life unlimited liability

What are the main advantages of a sole trader?

What are the main disadvantages of a sole trader?

What steps do new sole traders usually need to take beforethey can open?

Explain how a sole trader rests on the principles of freeenterprise



GENERAL PARTNERSHIPS LIMITED PARTNERSHIPS LIMITED LIABILITY

PARTNERSHIPS (LLP)

They are the type of businessorganization in which thepartners share the

management of the businessand each one is liable for all

business debts and loses

Profits are also shared, unless

there is a partnershipagreement that specifies

otherwise

They are the type of businessorganization in which at leastone partner is not involved in

the day-to-day running of business and is liable only for

the fund he / she has invested

Limited partners act as part

owners of the business andthey share in the profits

They are the types of businessorganization in which all thepartners are limited partners

and not responsible for thedebts and other liabilities of

other partners



Compare with sole proprietorships, in these organizations partners have greater access tofunds; on the other hand, it also exists possibilities for specialization among partners whichcan promote efficiency.

ADVANTAGES

Easy to open and close

Few regulations legal agreements in order toregulate rights and responsibilities

Access to resources it is easy to get bankLoans

Joint decision making this may result inbetter decisions; exception: Limited Partnerships

Specialization this promotes efficiency

DISADVANTAGES

Unlimited liability

Potential for conflict - having more than onedecision maker can affect human relationships ,interfere with efficiency and lead to the closing of

the business

Limited life - The business closes if the owner dies,retires or leaves for some other reason. If newpartners are added, they business can die, too



Choose three (3) banks in our city (BBVA, Bancolombia,Banco de Bogota, Banco de Occidente, Banco Caja Social oraSavingsCorporation AV Villas, Davivienda, etc.

Ask them how do the finance small businesses when they arestarting up amount they can lend, interest rates, number of

installments, etc.

Draw a chart comparing the different options offered.Present it to the group and explain



What are the differences in liability that distinguish generalpartnerships, limited partnerships and limited liability

partnerships?

Explain the relationship between the terms in each of these pairs:partnership general partnershiplimited partnership limited liability partnership

What are the main disadvantages of a partnership?What are the main advantages of a partnership?What determines how partners will divide responsibilities, profitsand debts?



A corporation is a business owned by individuals called shareholders or

stockholders who own the rights to the companys profits but face limited

liability for the companys debts and losses. These individuals acquireownership rights through the purchase of stock or shares of ownership in thecorporation

Stock is a share of ownership in a corporation. If the company does well andearns a profit, you might receive a payment called a dividend

A dividend is a part of corporations profit that is paid out to stockholders

A corporation that issues stock that can be freely bought and sold is called apublic company. The corporation which controls who can buy or sell its stockis called a private company



Frank and Shirley, the founders, decided to turn their business intoa corporation to avoid unlimited liability.

A corporation, unlike a proprietorship or a partnership, is a formal,

legal entity separate from the individuals who own and run it. Thefinancial liabilities of the company are separate from the personalfinancial liabilities of its owners. If the business fails, only its assetsare at risk. Nonetheless, setting up a corporation involves morework and expense.

The majority of corporations are organized as follows:

Stockholders elect of Board of Directors which hires corporateofficers such as the president and the vice-presidents who areresponsible for the smooth running of the corporation.



TYPE OF ORGANIZATION


SoleProprietorship

1. Easy to start up, close down2. Sole proprietor has satisfaction of

running business his / her own way

3. Few regulations4. Sole proprietor keeps all the profit

1. Limited funds2. Limited life3. Unlimited liability

Partnership1. Easy to start up, close down2. Few regulations

3. Greater access to funds4. Partners share decision making5. Partners bring skills to the business

1. Unlimited liability2. Limited life

3. Shared decision making may createconflict among partners

Corporation

1. Greatest access to funds2. Business run by professionals

3. Limited liability4. Unlimited life

1. Difficult to start up2. More regulations

3. Double taxation4. Owners may have less control of



Explain what a bond is

Explain the relationship between the terms ineach of these groupsStock bondPublic company private company

What are the main advantages of a corporation

What are the main disadvantages of acorporation



Gates was always fascinated with computers and software. He developedsoftware for his high school to schedule classes and for his hometown of Seattleto monitor traffic. At Harvard, he and his friend Paul Allen developed the BASIClanguage for personal computers. In 1975, during his third year, Gates left collegeto form a business with Allen to supply BASIC programming for an early brand of

personal computers. Gates and Allen called their company Micro-soft laterchanged to Microsoft.

Microsoft incorporated in 1981. When it struck a deal to provide the operatingsystem for IBM personal computers, it secured its dominance. Microsoft becamean international corporation in 1985, when it opened a production facility inDublin, Ireland. That same year, it released what would become the worlds mostpopular operating system, Microsoft Windows. Initially Microsoft focused oncorporate computing. With the release of Windows 95, however, it turned to theconsumer market.

In 1994, Gates established a foundation for charitable giving. It focuses on globalhealth and education. In 2006, Gates began shifting away from the day-to-dayresponsibilities of running Microsoft and toward running the foundation



Choose a Colombian Corporation

Find out about its history, owners, philosophy,mission, vision, evolution, products, marketssatisfied, target markets, social responsibility,ways of raising funds

Put all the information gather in a Power PointPresentation and show it both to your teacherand classmates



Consolidations take place for several reasons:

1. Efficiency,

2. Gaining a new identity as a business or losing an old one,3. Keeping rivals out of the marketplace and4. Diversifying the product line

There are some ways of business consolidation are known

1. H

orizontal merger2. Vertical merger3. Conglomerate4. MultinationalCorporation



A horizontal merger is the combining of two or

more companies that produce the same productor similar products

i.e. In 2005, Reebok and Adidas were thesecond and third biggest makers of sport shoes.When they merged, they cut production costs,improved their ability to compete against Nikeand had the chance to reduce their prices



A vertical merger is the combining of companies

involved in different steps of producing or marketing aproduct

i.e. In 1990, when oil and gas industry was undergoingmajor consolidations, ShellOil, which owned more

refineries, joined with Texaco, which owned more gasstations so, two companies involved in differentsteps of production (refining) or distribution (gettinggasoline to costumers) combined



A multinational corporation is a large corporation withsubsidiaries and branches in several countries

i.e.Coca Cola, Mc Donalds, Nike, Sony, KimberlyClark

Multinational corporations have many beneficial effects:they provide new jobs, goods and services around theworld and spread technological advances

When such companies open businesses in poorercountries, jobs and taxes revenues help raise the standardof living



How do corporations raise money?

What is a multinational corporation?

What is the difference between a vertical merger and ahorizontal one?

In what ways might a vertical merger in the oil industry

influence gas prices?

What are the benefits of combining several companies toform a conglomerate? Name an example of one



A franchise is a business that licenses the right to sell itsproducts in a particular area

Each franchisee a semi-independent business thatbuys the right to run a franchise pays a fee to theparent company in return for the right to sell thecompanys products or services in a particular areai.e. Fast-food restaurants, coffee bars, rental cars

The worlds leading franchises are: Mc Donalds, Yum!Brands ( KFC, Taco Bell, etc), 7-eleven, Cendent (AvisRentA-Car) and Subway




The franchisee gains more independence for he /she doesnt have to work for somebody else

The franchisee will get good training in running thebusiness , since his success affects the success of thefranchiser

The franchisee will be provided with provenproducts (know how) as well as other materials such

as the decoration used at relatively low cost

The franchiser will pay for national or regionaladvertising

Good will

High investment without any assurance of

success in the business

Shared profits with the franchiser

No control over some aspects of the business



Not all business exist solely to make profit. Cooperatives or co-ops are atype of business operated for the shared benefit of the owners who alsoare their costumers

There are three (3) basic types of cooperatives

1. Consumer or purchasing co-ops, they require some kind of membership payment. They keep prices low by purchasing goods inlarge volumes at a discount price

2. Service co-ops are business organizations that offer their members aservice

3. Producer co-ops are mainly owned and operated by the producers of agricultural products. They join together to ensure cheaper, moreefficient processing or better marketing of their products



They are businesses that aim to benefit society, not to make aprofit. They provide their goods or services for free or for aminimal fee or promote the common interests of their members business associations, trade unions, trade associations

Nonprofit organizations resemble to corporations in some ways:they must be allowed by the law, have unlimited life

On the other hand, they do not have to pay taxes for they do not

generate profits; raise their money from donations, grants ormembership fees some others raise money by selling products orservices to support their mission

i.e. Red Cross, Liga Colombiana contra el Cancer, FundacionCardio-infantil, etc.



Give an example of each of the following terms: franchise, cooperativeand nonprofit organization

What are the main advantages of a franchise?

What are the main disadvantages of a franchise?

How do consumer and service cooperatives save their members money?

What are some purposes of nonprofit organizations?

Explain how franchisees share the risk of the business venture with thefranchiser?

How do nonprofits get the money needed to pay the people who workfor them?



LICEO CAMPESTRE DE PEREIRA



AGRICULTURAL

MINERAL

INDUSTRIALCOMMERCIAL

SERVICES



Agricultural They focus on the agricultural and livestock industriesThey belong to the primary sector of the economy

Mineral They focus on the exploitation of mineral resources such as oil, gold,

emeralds, etc.

Industrial They focus on the transformation of raw material (input) into newproducts (output) to be sold to customers clothing, cars, etc.They belong to the secondary sector of the economy

Commercial They focus on the purchase and sale of products retailers,wholesalers and middlemen

Service They focus on the selling of all kinds of services such as education,health, communication, etc.



POWER / LACK OF POWER

To represent the company

SUBORDINADA OCONTROLADA

Direct / indirect dependency

MATRIZ OCONTROLANTE

HEADQUARTERS

SUBSIDIARY

BRANCH AGENCY

FILIAL



Headquarters They are the ones who make decisions and give orders to the ones which depend on them

Su sidiaries They are the ones ho indirectly depend on the decisions ade by the

headquartersore than 5 % of their capital belong to the Headquarters

They are not allowed to possess shares of the company they are

controlled by

Su ordinated ones - filiales They are the ones who directly depend on the decisions made by the headquarters

ore than 5 % of their capital belong to the HeadquartersThey are not allowed to possess shares of the company they are

controlled by

Branches They are commercial establishments opened by a company to developbusinesses administered by people empowered to do so

Those people have the legal representation of the company, too

Agencies They do not have the legal representation of the company



CAPITAL

PRIVATECOMPANIES

PU

LICCOMPANIES

MIXEDECONOMY

COMPANIES

FOREIGNCOMPANIES



Private Companies They are formed by people who invest their money in them in orderto obtain profit

Public Companies They are created either by the State or public organizations in order tocarry out activities particulars are not interested in



Mixed Economy Companies

Arts. 461 a 468

C. De Co.

They are the ones formed both by particulars and the State ( como nacion,departamento, municipio u organismos descentralizados)

The society is ruled by Commercial Private Law unless the State has got 90% or

more of the total capital. In this case, this society will be considered as a StateIndustrial or Commercial company and will be ruled by Public Law

The investment made by the State in this kind of company can be representedby: financial or fiscal advantages, special aids or guarantees or issuing bonusesto back the companys liabilities

If the company is both mixed and public (anonima), its shares will be issued indifferent series: for the people and for the State



Foreign CompaniesArts. 469 a 497

C. De Co.

These companies are the ones which are formed accordingly to othercountrys law and whose headquarters are abroad

Their Colombian branches are under the inspection and control of theState Superintendencias

To be able to work in Colombia, the company has the obligation to open apermanent branch in Colombia getting not only the permit issued by thecorresponding Superintendencia but also a certification given by a notariostatting they accomplish with some specific documents : acta defundacion, estatutos, acta de aprobacion de establecimiento en Colombiay personeria de sus representantes

If the purpose of this company is either to exploit or administer a publicservice or to carry out an activity related to national security, itsrepresentatives must beColombians

Its capital can be increased up to 50%; however, if it is higher, thecompany can be closed down



Articulos 353 a 372Codigo deComercio

Articulos 373 a 460

Codigo deComercio

Articulos 294 a 322

Codigo deComercio

Ley 222 de1995

SOCIEDADESUNIPERSONALES

SOCIEDADESCOLECTIVAS

SOCIEDADESLIMITADAS

SOCIEDAD ESANONIMAS



SociedadAnonima

Name

Razon Social

Minimum number of partners

Capital

Liability

The name of the company has to be followed by the wordsSociedad Anonima or the abbreviation S.A.

Five (5)

People can buy and sell their shares in the Stock Market Nacional deChocolates

The capital is represented in shares of the same value

In case of going out of business, the responsibility of eachshareholder is limited to the amount of money invested



Sociedad

i itada

Name

azon Social

Minimun and maximum

number of partners

Capital

Liabilit

Legal epresentation

Minimum documents to be

presented yearly

The name has to be f ollowed by the word Limitada orthe abbreviation Ltda

5

The capital is distributed among its members and it isnot represented in shares traded at the Stock arket

In case of trouble, its members are liable up to the

money invested

Its partners are in charge of its administration andrepresentation

In the Board of Directors, each partner will have asmany votes as shares has

Balance StatementProfit and Loss Statement



Sociedad de

HechoCharacteristics A public document is not required to create it

escritura publicaIt is not considered as a legal person and any kindliability has to be shared by the people who take partof it responsabilidad solidaria e ilimitada

PYMES

Micro companies

Small companies

Medium-size companies

Are the ones which employ no more than (10) peopleCapital equivalent to no more than (500) minimumsalaries apart from the facilities where they areestablished

No. of employees : between 11 and 50

Capital between 501 and 5,000 minimum salaries

No. of employees: between 51 and 200Capital between 5,001 and 30,000 minimum salaries



Give an example of aColombian and an overseas companystating the following:

To what sector of the economy does it belong ? Justify youranswer.

Where does the company have its headquarters, subsidiaries andbranches.Draw a chart

Is the company private, public, mixed or a foreign one? Justify youranswer

What kind of legal structure does the company have? How can youback your answer?

Provide the internet page where you took your answers from

The Economic Way of Thinking (3) - Companies

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