Medical Business Forms by jau16062

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									Types of Organizations
Forms of Business Ownership
      3 major forms of business
1. Sole / single proprietorship
   One owner
   Source of investment: personal funds
      Examples: bakery, flowershop, meat market
2. Partnership
   2+ owners, general partners, limited partners
   Source of investment: personal funds of partners
      Examples: law / accounting firms, medical / dental practices
Combination: Cooperatives
   a combination of several sole proprietorships
    and/or partnerships for greater production
    and marketing power
3 major forms of business (cont’d)

Corporation
  Owned by the shareholders = investors
  Under control of the Board of Directors,
   which is elected by the stockholders
  Source of investment: stock issues
Stock: A share of ownership in a corporation
   Two types: Common Stock & Preferred Stock
  How a corporation issues Stock

              issues (= sells) stock
                   (= shares)
                                  Shareholders of
Corporation XYZ                   Corporation XYZ




                       Other Investors
 Proportions of U.S. Firms in Terms of
Type of Business and Sales Revenue




                                         3
  Transfer of ownership in a
         corporation


Corporation XYZ                Shareholders of
                               Corporation XYZ



                                    Exchange stock
                                    (= shares)
                  Other investors
   Sole Proprietorship/Partnership
Advantages                     Disadvantages
 Freedom                       Unlimited Liability
                                Limited resources
 Simple to form
                                Limited fundraising
 Low start up costs              capability

 Tax benefits                  Lack of continuity

                    Unlimited Liability
        Legal principle holding owners responsible for
               paying off all debts of a business
                   Corporation
Advantages                  Disadvantages
 Limited financial liability  Double taxation
 Ease of transfer of          Complicated and
  ownership                     expensive to form
 Legal entity                  and manage
 Perpetual life               Subject to disclosure
Easier access to $$$ /         requirements by the
  capital to grow the           government (the SEC =
                                Securities & Exchange
  business (= stronger
                                Commission)
  fundraising capability)
     The concept of Double
           Taxation
 Income Statement          Shareholder„s
    Corporation          Personal Income
                            Statement
Sales           $100   Income from
Expenses          80     dividends        $10
Pre-tax income $ 20
Taxes (e.g. 50%) 10    Taxes (e.g. 30%)    $3
Net income      $ 10   Net income          $7
Role of the (common) Stockholders (= Owners)
Rights                        Risks
 Elect the Board of           The value of stock
  Directors                     declines.
 Benefit from stock           Dividends are cut or not
  appreciation (increase in
  value)                        paid.
 Receive dividends            In case of bankruptcy,
 Appoint auditors to           the stockholders are
  judge the company‟s           last in line to receive
  financial statements          compensation (usually
 Approve the issue of          nothing is left).
  new shares / stocks or
  the repurchase of
  existing stocks
       Roles in Corporate Governance



Process:
election



Process:
hire /
appointment


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   Role of the Board of Directors
Responsibilities:
 Represent the stockholders
 Fulfill objective: maximize shareholders’
  wealth
 Make sure that management acts in the best
  interest of stockholders
 Hire the company president
 Declare dividends
 Set policy
 Focus on “big picture” issues, not day-to-day
  management
    Role of the President / CEO
     (Chief Executive Officer)

 Manage the day-to-day operations
 Hire and supervise other managers
Types of Corporations—Comparisons
        Special forms of changes in
                 ownership
Merger:
     The union of two corporations to form a new corporation
Acquisition:
     A larger company buying a smaller one
Divestiture
     A firm selling off one or more of its business units (often
      unrelated or underperformin
Spin-off
     Setting up one or more of the company‟s units as new
      businesses (purpose: to raise capital)
Joint venture
     2 companies setting up a new (outside) company for
      collaboration and joint ownership, often in another country
                           In the news --
             Examples of changes in ownership
1.   Kraft and Cadbury Agree on Merger--Ending its resistance, Cadbury
     took an offer, worth about $19 billion, to create the world‟s biggest
     confectioner. New York Times, 1/19/10

2.   Time Warner‟s announcement on Thursday that it will spin off AOL
     was the much-anticipated divorce filing for a multibillion-dollar
     corporate marriage that came to symbolize an entire era in American
     business but that had long been acknowledged as a failure. New
     York Times, 5/28/09

3.   A.I.G. Unit May Be Sold to MetLife--The deal, if it goes through,
     would help pay off $9 billion of A.I.G.‟s rescue debt to the
     government. New York Times, 1/19/10

4.   Ford‟s 2009 China joint-venture sales jump 44% in sharp contrast to
     the U.S. carmakers decline in sales at home. MarketWatch, Jan. 7,
     2010
                      Sole Proprietorship                     Partnership                                   Corporation
                      (Business owned by an     (Two or more persons as co-owners)           (Operates as legal entity separate from its
                      individual)                                                            owners – ownership interest represented by
                                                                                             shares of stock)
Organizational        Minimal if any            May be somewhat more (depends upon           Greatest organizational requirements and cost
Requirements and                                approach in forming the partnership)         of formation
Costs
Liability of Owners   Unlimited personal        Unlimited liability (except for limited      Liability is limited to amount of
                      liability for business    partners in “limited partnership”; still     shareholder’s investment (i.e. no recourse to
                      obligations               must be at least one general partner w/      personal assets)
                                                unlimited liability)


Continuity of         Business generally        Depends upon partnership agreement           Continues regardless of owner withdrawal or
Business              ceases with withdrawal                                                 death
                      or death of owner
Transferability of    Limited                   Limited marketability of partnership         Ownership of shares is readily transferable
Ownership                                       interest

Management            Owner retains complete    Shared management responsibility and         Shareholders appoint Board of Directors that
Control &             control and authority.    authority among partners.                    in turn hires management. Corporate
                      Minimal regulation.                                                    management serves as agent for owners.
Regulation
                                                                                             Greater regulation.

Ability to Raise      Limited                   May be somewhat less limited (i.e.           Greatest ease in raising substantial capital
Capital                                         multiple partners, potential for limited     from external investors and lenders
                                                partners as investors in limited
                                                partnership, increase in potential
                                                borrowing capacity)
Income Taxes          Business income is        Partnership files informational tax          Corporation files tax return and pays tax due
                      reportable and taxed on   return. Partnership income is reportable     on corporate earnings (dividends paid to
                      the individual’s          and taxed on partners’ personal income tax   shareholders result in “double taxation” of
                      personal income tax       returns                                      corporate income)
                      return
               Comparative Summary:
              Three Forms of Business
 Business                                                          Investment
                 Liability    Continuity        Management
  Form                                                               Sources

Proprietorship   Personal,   Ends with death    Personal,          Personal
                 limited     or decision of     unrestricted
                             owner

General          Personal,   Ends with death    Unrestricted or    Personal by
Partnership      unlimited   or decision of     depends on         partner(s)
                             any partner        partnership
                                                agreement

Corporation      Capital     As stated in       Under control of   Purchase of
                 invested    charter,           board of           stock
                             perpetual or for   directors, which
                             specified period   is selected by
                             of years           stockholders             Table 3–1
Creating a Corporation


   3 basic steps:
       Consult an attorney
         Develop articles of incorporation
         Develop by-laws
       Select a state in which to incorporate
         Considerable tax and regulatory disparity
       File corporate documents




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