Philosophy of business by liuhongmei

VIEWS: 467 PAGES: 101

									Fundamentals of Business

                      Table of Contents
Philosophy of business .................................................................. 5
  Early development of the philosophy of business .......................................................... 5
  Modern philosophers of business ................................................................................... 8
  Some important philosophical topics and questions ....................................................... 9
    The purpose of a business ........................................................................................... 9
    Contract theory ......................................................................................................... 10
    Stakeholder theory .................................................................................................... 10
    Business as property ................................................................................................. 10
    The business mission ................................................................................................ 11
    A mini-republic or modern village ........................................................................... 12
    The ontology of the business enterprise ................................................................... 12
    The epistemology and logic of business ................................................................... 13
Business ........................................................................................ 13
  Basic forms of ownership ............................................................................................. 14
  Classifications ............................................................................................................... 15
  Management.................................................................................................................. 15
  Government regulation ................................................................................................. 16
    Organizing ................................................................................................................ 16
    Commercial law ........................................................................................................ 17
    Capital ....................................................................................................................... 18
    Intellectual property .................................................................................................. 19
    Exit plans .................................................................................................................. 19
Business operations ..................................................................... 19
  Generating recurring income ........................................................................................ 20
  Securing the income and value of the business ............................................................ 20
  See also ......................................................................................................................... 21
Business process ......................................................................... 21
  Overview ....................................................................................................................... 21
  History .......................................................................................................................... 22
    Adam Smith .............................................................................................................. 22
    Other definitions ....................................................................................................... 22
  Supporting theories and concepts ................................................................................. 24
    Division of labor ....................................................................................................... 24
    Span of control .......................................................................................................... 24
    Departmentalization by process and purpose ........................................................... 24
    Information management concepts ........................................................................... 24
Business plan ................................................................................ 25
  Business Plan Content .................................................................................................. 25
  Business ........................................................................................................................ 26
    Support services ........................................................................................................ 26
    Strategic Analysis ..................................................................................................... 27
    Forecasts: Modeling Techniques .............................................................................. 27
  Presentation Formats..................................................................................................... 27
  Revisiting the Business Plan ......................................................................................... 28
    Cost overruns and revenue shortfalls ........................................................................ 28


IMSA                                                                                                                                 1
Fundamentals of Business

  Legal and Liability Issues ............................................................................................. 28
    Disclosure requirements ........................................................................................... 28
    Limitations on content and audience ........................................................................ 28
  Open Business Plans ..................................................................................................... 28
  How Business Plans are Used ....................................................................................... 29
    Venture Capital ......................................................................................................... 29
    Public Offerings ........................................................................................................ 29
    Within Corporations ................................................................................................. 29
    Education .................................................................................................................. 30
  Satires of Business Plans .............................................................................................. 30
Marketing plan ............................................................................... 31
  The marketing planning process ................................................................................... 31
  Marketing planning aims and objectives ...................................................................... 32
  Content of the marketing plan ...................................................................................... 36
    Medium-sized and large organizations ..................................................................... 36
  Measurement of progress .............................................................................................. 39
  Performance analysis .................................................................................................... 39
    Sales analysis ............................................................................................................ 39
    Market share analysis................................................................................................ 39
    Expense analysis ....................................................................................................... 40
    Financial analysis ...................................................................................................... 40
    Use of marketing plans ............................................................................................. 40
  Budgets as managerial tools ......................................................................................... 41
Business cycle .............................................................................. 41
  History .......................................................................................................................... 42
  Identifying ..................................................................................................................... 43
    Cycles or fluctuations?.............................................................................................. 43
  Explaining ..................................................................................................................... 44
    Mitigation.................................................................................................................. 45
  Alternative views .......................................................................................................... 45
    Politically-based business cycle................................................................................ 45
    Marxian economics ................................................................................................... 46
    Anarcho-syndicalist and libertarian socialist ............................................................ 46
    Austrian school ......................................................................................................... 47
Business ethics ............................................................................. 48
  Overview of issues in business ethics ........................................................................... 48
    General business ethics ............................................................................................. 48
    International business ethics and ethics of economic systems ................................. 51
  Theoretical issues in business ethics ............................................................................. 52
    Conflicting interests .................................................................................................. 52
    Ethical issues and approaches ................................................................................... 52
  Business ethics in the field............................................................................................ 54
    Corporate ethics policies ........................................................................................... 54
    Ethics officers ........................................................................................................... 55
  Religious views on business ethics ............................................................................... 56
  Related disciplines ........................................................................................................ 56



IMSA                                                                                                                                 2
Fundamentals of Business

Sole proprietorship ....................................................................... 57
  Advantages.................................................................................................................... 57
  Disadvantages ............................................................................................................... 57
Partnership .................................................................................... 58
  Definition in Civil Law ................................................................................................. 58
     Germany.................................................................................................................... 58
     China ......................................................................................................................... 59
     Japan ......................................................................................................................... 59
  Common Law ............................................................................................................... 59
     Hong Kong ................................................................................................................ 59
     Australia .................................................................................................................... 60
     United Kingdom limited partnership ........................................................................ 60
     India .......................................................................................................................... 61
     USA .......................................................................................................................... 61
  Islamic Law................................................................................................................... 61
Corporation ................................................................................... 62
  Corporations' history ..................................................................................................... 63
    Mercantilism ............................................................................................................. 63
    Modern corporations ................................................................................................. 65
  Corporate law ................................................................................................................ 65
    Ownership and control .............................................................................................. 66
    Formation .................................................................................................................. 67
    Naming...................................................................................................................... 68
    Unresolved issues ..................................................................................................... 68
  Types of corporations ................................................................................................... 69
    For-profit and non-profit ........................................................................................... 69
    Closely held and public............................................................................................. 69
    Mutual benefit corporations ...................................................................................... 70
  Corporations globally ................................................................................................... 71
    Australia .................................................................................................................... 71
    Brazil ......................................................................................................................... 71
    Canada ...................................................................................................................... 71
    German-speaking countries ...................................................................................... 72
    Italy ........................................................................................................................... 72
    Japan ......................................................................................................................... 72
    United Kingdom ....................................................................................................... 72
    United States ............................................................................................................. 73
  Corporate taxation......................................................................................................... 74
  Criticisms of Corporations ............................................................................................ 75
  Other business entities .................................................................................................. 75
Types of business entity .............................................................. 76
  Albania .......................................................................................................................... 76
  Argentina ...................................................................................................................... 76
  Australia ........................................................................................................................ 76
  Austria ........................................................................................................................... 76
  Belarus .......................................................................................................................... 77



IMSA                                                                                                                                  3
Fundamentals of Business

  Belgium ......................................................................................................................... 77
  Bosnia and Herzegovina ............................................................................................... 77
  Brazil ............................................................................................................................. 78
  Bulgaria ......................................................................................................................... 78
  Chile .............................................................................................................................. 78
  China ............................................................................................................................. 78
  Colombia....................................................................................................................... 79
  Croatia ........................................................................................................................... 79
  Czech Republic ............................................................................................................. 79
  Denmark........................................................................................................................ 79
  Estonia .......................................................................................................................... 79
  European Economic Area (including the European Union) ......................................... 80
  Finland .......................................................................................................................... 80
  France............................................................................................................................ 80
  Germany........................................................................................................................ 81
  Greece ........................................................................................................................... 81
  Hong Kong .................................................................................................................... 82
  Hungary ........................................................................................................................ 82
  Iceland ........................................................................................................................... 82
  India .............................................................................................................................. 82
  Indonesia ....................................................................................................................... 83
  Iran ................................................................................................................................ 83
  Ireland ........................................................................................................................... 83
  Israel.............................................................................................................................. 84
  Italy ............................................................................................................................... 84
  Japan ............................................................................................................................. 84
  Kazakhstan .................................................................................................................... 85
  South Korea .................................................................................................................. 85
  Latvia ............................................................................................................................ 86
  Lithuania ....................................................................................................................... 86
  Luxembourg .................................................................................................................. 86
  Macedonia ..................................................................................................................... 86
  Malaysia ........................................................................................................................ 86
  Mexico .......................................................................................................................... 86
  Namibia ......................................................................................................................... 87
  Netherlands ................................................................................................................... 87
  New Zealand ................................................................................................................. 87
  Norway.......................................................................................................................... 87
  Pakistan ......................................................................................................................... 88
  Peru ............................................................................................................................... 88
  Philippines .................................................................................................................... 88
  Poland ........................................................................................................................... 88
  Portugal ......................................................................................................................... 89
  Romania ........................................................................................................................ 89
  Russia ............................................................................................................................ 89
  Serbia ............................................................................................................................ 90
  Singapore ...................................................................................................................... 90


IMSA                                                                                                                                    4
Fundamentals of Business

  Slovakia ........................................................................................................................ 90
  Slovenia ........................................................................................................................ 90
  South Africa .................................................................................................................. 90
  Spain ............................................................................................................................. 91
  Sweden .......................................................................................................................... 91
  Switzerland ................................................................................................................... 91
  Thailand ........................................................................................................................ 92
  Ukraine.......................................................................................................................... 92
  United Kingdom ........................................................................................................... 92
  United States ................................................................................................................. 93
    Federally incorporated .............................................................................................. 93
    State incorporated ..................................................................................................... 94
  Uruguay ...................................................................................................................... 101
  Uzbekistan .................................................................................................................. 101
  Vietnam ....................................................................................................................... 101


Philosophy of business
The philosophy of business considers the fundamental principles that underlie the
formation and operation of a business enterprise; the nature and purpose of a business, for
example, is it primarily property or a social institution; its role in society; and the moral
obligations that pertain to it. The subject is important to business and management, and is
closely related to business ethics and political economy. It is influenced significantly by
philosophy, ethics, and economic theory.

One must draw an important distinction between the philosophy of business and business
philosophy, which is an appellation that one often hears in the business world. More often
than not, the latter designation is intended to denote a way of doing business or a business
outlook, a popular use of the term philosophy, instead of its more formal, academic
meaning, using the concepts and methods employed by philosophers. The latter meaning
applies to the philosophy of business in this article. The phrase philosophy of business
also might be used in the same way as business philosophy, for example, "Risk taking
represents my philosophy of business." However, this is not the same sense that
philosophy is used in this article.

 Early development of the philosophy of business
It is a somewhat curious truism that despite the fact that business touches nearly every
aspect of our lives, few thinkers have shown an interest in it from a rules or philosophical
perspective until relatively recently. Indeed, few philosophers can be said to have paid
much attention to the business enterprise, itself, prior to the latter part of the 20th century.
Many philosophers tended to look askance at commercial activity, believing, as Plato did,
that only the worst sort of people are involved in such matters. Plato is not unlike many
academics throughout history, even today, who tend to think of business as a necessary
evil in society, and not as something worthy of serious philosophical consideration. To



IMSA                                                                                                                                  5
Fundamentals of Business

the extent philosophers were concerned with business, they were primarily interested in it
from an economic or political standpoint, and not as a primary object of attention.

Although there have been few "philosophers of business", per se, business and economics
has not developed in a vacuum. It is built on many tacit philosophical principles and
assumptions that we can examine. As a general rule, business practitioners and theorists
tend to accept the principles that are current in their society. In the European Middle
Ages, for example, the dominant Christian influence resulted in a pricing practice know
as just price, and in the Enlightenment the dominant view of economic decision making
was one of rationality.

The formative years in the development of the modern philosophy of business and
economics was the 17th and 18th century. At that time, thinkers like Hobbes, Locke,
Rousseau, Shaftesbury, and Smith created the intellectual foundation upon which modern
business and capitalism was built. A basic principle subsumed within business practice
and economic theory alike is the notion of free will. Thomas Hobbes, John Locke, and
Jean-Jacques Rousseau all accepted that we are free moral agents, able to make decisions,
control our own destiny, and engage in a social contract. This notion would later be
celebrated in the idea of the entrepreneur, someone that freely decides to pursue a risky
venture in the hope of receiving great rewards. It is also at the core of utility theory, a
model of consumer behaviour in economics in which consumers freely choose what to
purchase.

Another philosophic principle that would become part of business theory and practice is
rationality. The general philosophic predilection of the enlightenment was that people
were fundamentally rational. Philosophers such as René Descartes and Spinoza had built
whole systems of thought on this assumption. Capitalism would do the same. For two
hundred years economics was founded on the assumption of Homo economicus. This
assumption has recently been challenged by Herbert Simon, among others.

Another key philosophic assumption is atomism. It was John Locke's view of society as
an aggregation of independent, autonomous individuals, rather than Jean-Jacques
Rousseau's vision of society as an organic collective that would become an integral part
of business philosophy. The key ethical unit is the individual. Social institutions are
merely constructs that individuals can use for their own purposes. Many years later,
Milton Friedman used this assumption in arguing that corporations have no moral
responsibility because, he contended, they are not individuals capable of responding to
moral claims. Only the individuals within the business enterprise have a moral
responsibility.

Modern business practice and theory developed in the age of scientific discovery, and this
gave it a mechanistic orientation. In particular, Newton had just discovered classical
physics. This would influence business and economics in ways that we are just beginning
to understand. Early writers dealing with economic topics, such as Adam Smith,
borrowed many of their techniques and terminology from classical physics. They would
use terms like "equilibrium", "labour force", "elasticity", and "income accelerator".
Today a few theorists are starting to question the mechanistic approach and model


IMSA                                                                                       6
Fundamentals of Business

business on biological principles or chaos theory. Newton's law of inertia has found its
way into marketing where it is claimed that consumers will continue in their current state
unless they are encouraged to act otherwise. Thus advertising is claimed to perform the
valuable role of helping people experience a more variegated and interesting life.

John Locke also contributed an important attitude towards the private ownership of
property. He claimed that individuals have certain inalienable, natural rights. One of
these is the right of ownership. He said that if we toil on the land and mix our sweat with
the soil, we become the rightful owners of the land. This argument was extended to other
assets including the factors of production, a conclusion that many, including Karl Marx,
would challenge.

Another key concept that underlies modern business is psychological egoism. This states
that the core moral obligation is to oneself. Thomas Hobbes saw all action as motivated
out of self-interest. A group of philosophers including Mandeville, Butler, Shaftsebury,
Hutcheson, and Smith (sometimes referred to as the "enlightened self-interest school")
developed this into one of the core concepts of modern business theory. Bernard
Mandeville claimed that private vices are actually public benefits. In The Fable of the
Bees (1714) he laments that the "bees of social virtue are buzzing in mans bonnet".
Civilized man has stigmatized his private appetites and the result is the retardation of the
common good. Bishop Butler claimed that pursuing the public good was the best way of
advancing one's own good since the two were necessarily identical. Lord Shaftesbury
turned the convergence of public and private good around, claiming that acting in
accordance with ones self interest will produce socially beneficial results. An underlying
unifying force that Shaftesbury called the "Will of Nature" maintains equilibrium,
congruency, and harmony. This force, if it is to operate freely, requires the individual
pursuit of rational self-interest, and the preservation and advancement of the self. Francis
Hutcheson also accepted this convergence between public and private interest, but he
attributed the mechanism, not to rational self interest, but to personal intuition which he
called a "moral sense". Adam Smith developed a version of this general principle in
which six psychological motives combine in each individual to produce the common
good. He called it the invisible hand. In The Theory of Moral Sentiments, vol II, page
316, he says: By acting according to the dictates of our moral faculties, we necessarily
pursue the most effective means for promoting the happiness of mankind. Since Smith's
time, the principle of the invisible hand has been further incorporated into economic
theory. Leon Walras developed a four equation general equilibrium model which
concludes that individual self interest operating in a competitive market place produce the
unique conditions under which a society's total utility is maximized. Vilfredo Pareto used
an edgeworth box contact line to illustrate a similar social optimality.

A link can also be made between utilitarianism and the fundamental principles of the
philosophy of business, however this is more theoretical that practical. Economists use
utility theory to model human actions. Like Jeremy Bentham, modern economists assume
that people are hedonists, that is they prefer more satisfaction to less satisfaction. The
amount of satisfaction can be expressed in terms of the utility a person derives from the
satisfaction. Social welfare functions used in modern welfare economics are an outgrowth
of John Stuart Mill's utilitarian calculation of obtaining the greatest good for the greatest


IMSA                                                                                          7
Fundamentals of Business

number. The grounding of business principles on teleological ethics has been challenged
by many deontological philosophers. John Rawls' maxmin criterion also provides an
alternative.

Modern philosophers of business
It is fair to say that most modern philosophers of business are involved in other
philosophical or scholarly pursuits, and that they come to the philosophy of business as a
sub-specialty, or only indirectly because it relates to another area of interest. Thus, they
are primarily philosophers dealing with other subjects, economists, or business
management theorists. If one were to examine the philosophy departments in most
universities, today, one would find precious few courses in the philosophy of business (as
opposed to a growing number of business ethics or applied ethics courses). There are
indications that a growing number of philosophers with formal training in academic
philosophy will come to specialize in the philosophy of business.

Perhaps the best known modern philosopher of business is Peter Drucker, whose
publications have had a profound influence on management and organizational theory,
generally, and on how we think of the business enterprise. More often than not, people
who think about business issues are considering it from an applied perspective, which is
to say, what is the best or most effective means of transacting commerce or managing the
enterprise, with some goal in mind, usually profitability, improving employee relations,
or marketing. While Drucker has dealt with these issues and many more in numerous
publications over his long life, he also inquires into the principles and concepts that
underlie commercial activity and organizational structure, and he asks what ought the
mission of a business to be, and, in particular, how can we reconcile a business mission
with conflicting interests in the marketplace and society.

One of the most frequently discussed topics is the matter of organizational change in a
complex environment. Paul R. Lawrence has dealt primarily with organizational change,
organization design, and the relationship between the structural characteristics of
complex organizations and the technical, market and other conditions of their immediate
environment. His 1967 book, Organization and Environment (written with Professor Jay
Lorsch), added contingency theory to the vocabulary of students of organizational
behavior.

Other philosophers of business, for example, Geoffrey Klempner, are principally
interested in examining how business is even possible, which is to say, how can an
enterprise function in society as a whole. Klempner states that theories of ethics and
business are often at odds, and that one might even have to suspend the normal ethical
considerations that would apply outside of business in order for a business to be possible.
This is reminiscent of Albert Z. Carr's famous and controversial Harvard Business
Review article on bluffing, where he said business was similar to playing poker, and that
deception is a necessary part of business.

Of course, there is a close relationship between the philosophy of business and business
ethics. Philosophers specializing in business ethics are primarily interested in how


IMSA                                                                                       8
Fundamentals of Business

business people ought to conduct themselves in the marketplace and in society.
Philosopher Norman E. Bowie adopts Kant's three versions of the categorical imperative
for ensuring ethical business conduct, and he pays particular attention to the third
variation, whereby the people within a business must be seen as a kingdom of ends, and
not merely treated as means to an end.

The "invisible hand" is a favorite metaphor for practitioners of modern-day Western
capitalism, the ideology driving globalization and, for the most part, business as we know
it today. What many of the bottom-line fundamentalists may ignore is the degree to
which the so-called "free market" has been skewed and maneuvered in ways Adam Smith
never envisioned. Thus the question of ethics and conscience runs deeper yet. With
exponential increases in government laws, regulations and court decisions regarding
business in the past century, ethical practice has morphed from doing "the right thing" as
conscience would dictate to doing what complies with the law or isn't explicityly illegal.
Thus there's been a gradual relaxation of internal moral compass and greater reliance on
external parameters, as in "if it isn't illegal, it must be all right," as well as a new skillset
in finding "legal loopholes" in stretching the boundaries of compliance.

 Some important philosophical topics and questions
The purpose of a business

Some would argue that the main purpose of a business is to maximize profits for its
owners, or in the case of a publicly-traded company, its stockholders. The late economist
Milton Friedman was a proponent of this view and many bottom-line fundamentalists
used his 1970 historic statement to this effect to justify a "Darwinomics" approach to
doing business.

Others would say that its principal purpose is to serve the interests of a larger group of
stakeholders, including employees, customers, and even society as a whole. Most
philosophers would agree, however, that business activities ought to comport with legal
and moral strictures. One proponent of this philosophy has been U.S. businessman-
turned-futurist John Renesch 1 who writes, "Corporations are human-made organisms,
associations of human beings. To see this association as having one solitary purpose and
responsibility, to grow only in economic terms, is such an extreme view that implosions
like what happened to Enron, WorldCom and other corporate collapses will become more
and more commonplace."

Anu Agha, ex-chairperson of Thermax Limited, once said, "We survive by breathing but
we can't say we live to breathe. Likewise, making money is very important for a business
to survive, but money alone cannot be the reason for business to exist". Profit
maximization is extremely relevant when top management is mandated with the job of
selecting the right strategy for the business. According to Michael Porter, the primary
goal for any business strategy exercise must be that of maximizing profitability.




IMSA                                                                                           9
Fundamentals of Business

Peter Drucker defined the very purpose of business as creating a satisfied customer. This
definition is also useful in evaluating to what extent a business is succeeding in fulfilling
its stated purpose.

Many observers would hold that concepts such as economic value added (EVA) are
useful in balancing profit-making objectives with other ends. They argue that sustainable
financial returns are not possible without taking into account the aspirations and interests
of other stakeholders (customers, employees, society, environment). This conception
suggests that a principal challenge for a business is to balance the interests of parties
affected by the business, interests that are sometimes in conflict with one another.

Contract theory

Advocates of business contract theory believe that a business is a community of
participants organized around a common purpose. These participants have legitimate
interests in how the business is conducted and, therefore, they have legitimate rights over
its affairs. Most contract theorists see the enterprise being run by employees and
managers as a kind of representative democracy.

Stakeholder theory

Stakeholder theorists believe that people who have legitimate interests in a business also
ought to have voice in ho . The obvious non-owner, stakeholders are the employees.
However, stakeholder theorists take contract theory a step further, maintaining that
people outside of the business enterprise ought to have a say in how the business
operates. Thus, for example, consumers, even community members who could be
affected by what the business does, for example, by the pollutants of a factory, ought to
have some control over the business.

Business as property

Some philosophers believe that a business is essentially someone's property, and, as such,
that its owners have the right to dispose of it as they see fit, within the confines of the law
and morality. They do not believe that workers or consumers have special rights over the
property, other than the right not to be harmed by its use without their consent. In this
conception, workers voluntarily exchange their labor for wages from the business owner;
they have no more right to tell the owner how he will dispose of his property than the
owner has to tell them how to spend their wages, which is property belonging to the
workers. Similarly, assuming the business has purveyed its goods honestly and with full
disclosure, consumers have no inherent rights to govern the business, which belongs to
someone else.

Philosophers who subscribe to this view generally point out that a property owner's rights
are nevertheless not unlimited, and that they are constrained by morality. Thus, a home
owner cannot burn down his home and thereby jeopardize the entire neighborhood.
Similarly, a business does not have an unlimited right to pollute the air in the
manufacturing process.


IMSA                                                                                        10
Fundamentals of Business

Followers of John Locke would suggest that the first instance of property is the property
that one has in himself, and that one's labor is an extension of this. The labor theory of
value suggests that when one mixes his labor with an object, he thereby makes it his
property, and that his labor is the principal means of measuring value. Many classical
economists and Marxists both subscribe to this view. Marxists also believe that modern
production, which involves many inputs, makes an equitable division of this property
impossible, which, among other reasons, necessitates that the state hold property and the
factors of production in common for everyone. They assert that labor value provides an
objective measure of economic activity, compared to price and other measures which
they see as subjective and fluctuating.

Many neo-classical thinkers, for example, Ludwig von Mises, believe that value is
subjective and that labor is incommensurable (e.g., comparing the labor of a house
painter to the labor of Picasso). They return to the classical belief in practice but assert
that price is objective, the product of multiple, albeit subjective, valuations. Moreover,
they assert that what really matters for assigning ownership is whether or not property
was acquired or exchanged legally (see Robert Nozick), which is known as the historical
entitlement theory, whereas Marxists assert that there are no property rights in the means
of production.

Libertarian socialists, sometimes known as left-anarchists, hold that, as Proudhon said,
"Property is theft" — that is, in reference to the ownership of productive resources,
property is not the right to use, but the right to keep others from using. Advocates of this
philosophy therefore hold the "institution of property", as they sometimes call it, to be
immoral in itself, so the accumulation of wealth that includes productive resources,
especially land, is also immoral. This means that no business can really be ethical, since
the very foundation of business as we know it is private property.

The business mission

The mission of a business is basically what it does, its principal objective (e.g., to make
cars, sell guns, provide insurance, sell hamburgers). One can gussy it up with adjectives,
of course, for example, to make the best, largest, greatest, etc., but, for our purposes, we
intend only to know the major objective or objectives of the enterprise without the fluff
or superlatives. The philosophical question arises, are some missions immoral? For
example, if a business intends to manufacture and sell a recreational drug that is known to
be harmful to the users, is it immoral to do so? What if the business fully discloses the
risks, and non-users are not put at any unnecessary risk as a result? One could easily ask
such questions of guns, sex, motorcycle helmets, dangerous amusement park rides, and so
forth.

Some philosophers would suggest that a business ought to be allowed to sell virtually
anything that does not harm unwilling, rational participants (i.e., innocent bystanders),
provided the business fully discloses the dangers to those who purchase its products.
Others, of course, would say that business and society have duties to protect people from
exercising poor judgment. A libertarian might say that such proscriptions are laden with



IMSA                                                                                       11
Fundamentals of Business

subjective valuations, and that people have a right to choose for themselves, that is, as
long as they do not harm others.

A mini-republic or modern village

Some philosophers see the business enterprise as a means of transmitting social justice, as
a kind of mini-republic. This is especially true of contract and stakeholder theorists.
Those who view a business as being primarily someone's property reject this view. While
they might believe that the net effect of people disposing and exchanging their property
freely will benefit society as a whole, they would argue, even if this were not the case, if
there were no utilitarian advantage, one ought not to limit another's freedom, that is,
unless it is harmful to others.

Regardless of how one thinks about these matters, it is undeniable that a business
enterprise represents an increasingly important part of people's lives, especially the
employees working there, for, in many ways, the business constitutes a person's principal
social group, and it amounts to a replacement for the village or tribe that was the central
social setting for our ancestors. In many ways, one's affiliation with a business is the most
important social institution most of us have outside of the family.

The ontology of the business enterprise

What makes a business a business? We take for granted that a business is a profit-making
entity. How, then, are we to characterize a business that is run only for the benefit of the
people who buy from it, for example, a so-called co-operative? Similarly, how might we
characterize an insurance business that is owned by its clients, as in the case of a mutual
insurance company? Do the owners of insurance policies buy them primarily for a profit?
What about charitable enterprises, such as Goodwill Industries, or religious organizations
such as Trinity Broadcasting Network? Are all of these organizations businesses in the
same sense as, say, General Motors is?

What is it that fundamentally distinguishes a business from other kinds of organizations,
say, governmental organizations? For example, how could we characterize quasi-
governmental organizations such as the U.S. Post Office and Amtrak, which are supposed
to be self-sustaining, even profitable (for reinvestment, reducing or eliminating taxpayer
subsidy, reserves)? Would we call such organizations businesses? One might suggest that
these are run for the benefit of society, whereas a business is to satisfy the interests of its
owners. However, is it not the case that society owns the government? One also would
have to ask, how is one entity's satisfying the various interests of some segment of
society substantially different from another entity's making a profit that also satisfies
various interests, sometimes even the same ones?

What about a person who trades his labor in return for a wage? Is he also in business?
After all, he is putting up risk capital, in the sense that he's giving up his time...an
opportunity cost...and even making an investment of himself, his labor. He is performing
a service, just as a business does. His employer is, in a sense, a customer, someone whom
he must satisfy. And the employee markets himself, his skills, either to get a job or to get


IMSA                                                                                        12
Fundamentals of Business

ahead. He has either an explicit or implicit performance agreement, a contract. He even
hopes that his revenues will exceed his expenses, which is to say, that his efforts will be
profitable. Does this, therefore, make every laborer a business person?

In other words, a philosopher might reasonably ask, what elements constitute the
essential and distinguishing characteristics of a business enterprise? Perhaps it ends up
being something as simple as being one or more persons engaged in any number of
possible exchanges that satisfies any number of possible interests in an intentional,
organized, planned manner. In any case, these are at least some of the questions one
might ask about the ontology of a business.

The epistemology and logic of business

In the epistemology of business, we ask what are business facts and how do we come to
know them? What constitutes business knowledge versus mere belief? As in other aspects
of life, in business we acquire our knowledge through empirical study, from which we
draw conclusions using inductive or deductive methods. We test our hypotheses, using
them as long as they are not empirically falsified, and thereby develop business theories,
organized explanations of the facts. To what extent is what we purport to be business
knowledge...other than that which is relatively trivial...reliable or veridical?

Business relies heavily on inductive reasoning, which assumes a uniformity of nature,
such that the future is assumed to resemble the past. This, of course, is problematic,
especially when considering the complexity involved in adequately factoring in the
effects of customers, competitors, legislative and regulatory encumbrances, employees,
environmental and climatic hazards, war, new technology, and so forth, into useful
quantitative formulae. It is impossible to bind all of the variables for making probabilistic
judgments on many of the most important business problems with a high degree of
confidence. For this reason (among others)...because of the number of variables and the
sheer unpredictability of outcomes...there is a rather considerable risk of failure in
business; conversely, there would seem to be a rather high degree of luck in achieving
success, or putting it in the vernacular, being at the right place at the right time. This
relates to the simple fact that business knowledge is highly tentative, and subject to error
or obsolescence.

The philosopher of business might also reasonably ask, to what extent does intuition play
a role in our business knowledge. What does it mean to have "a gut feeling" about a
business matter, and how is it useful. Is there even such a thing as business intuition, or is
it simply a matter of internalizing knowledge through a variety of experiences, such that
it seems intuitive. At the very least, a great many managers and marketers would say that
they operate using their intuition a great deal, perhaps especially in dealing with people,
which, of course, leads us to inquire into the role of psychology.


Business

IMSA                                                                                        13
Fundamentals of Business

A business (also called a firm or an enterprise) is a legally recognized organization
designed to provide goods and/or services to consumers.1 Businesses are predominant in
capitalist economies, most being privately owned and formed to earn profit that will
increase the wealth of its owners and grow the business itself. The owners and operators
of a business have as one of their main objectives the receipt or generation of a financial
return in exchange for work and acceptance of risk. Notable exceptions include
cooperative businesses and state-owned enterprises. Socialist systems involve either
government agencies, public, or worker ownership of most sizable businesses.

The etymology of "business" relates to the state of being busy either as an individual or
society as a whole, doing commercially viable and profitable work. The term "business"
has at least three usages, depending on the scope — the singular usage (above) to mean a
particular company or corporation, the generalized usage to refer to a particular market
sector, such as "the music business" and compound forms such as agribusiness, or the
broadest meaning to include all activity by the community of suppliers of goods and
services. However, the exact definition of business, like much else in the philosophy of
business, is a matter of debate.

Business Studies, the study of the management of individuals to maintain collective
productivity in order to accomplish particular creative and productive goals (usually to
generate profit), is taught as an academic subject in many schools.

Basic forms of ownership
Although forms of business ownership vary by jurisdiction, there are several common
forms:

      Sole proprietorship: A sole proprietorship is a business owned by one person.
       The owner may operate on his or her own or may employ others. The owner of
       the business has total and unlimited personal liability of the debts incurred by the
       business.
      Partnership: A partnership is a form of business in which two or more people
       operate for the common goal of making profit. Each partner has total and
       unlimited personal liability of the debts incurred by the partnership. There are
       three typical classifications of partnerships: general partnerships, limited
       partnerships, and limited liability partnerships.
      Corporation: A business corporation is a for-profit, limited liability entity that
       has a separate legal personality from its members. A corporation is owned by
       multiple shareholders and is overseen by a board of directors, which hires the
       business's managerial staff.
      Cooperative: Often referred to as a "co-op business" or "co-op", a cooperative is
       a for-profit, limited liability entity that differs from a corporation in that it has
       members, as opposed to shareholders, who share decision-making authority.
       Cooperatives are typically classified as either consumer cooperatives or worker
       cooperatives. Cooperatives are fundamental to the ideology of economic
       democracy.



IMSA                                                                                       14
Fundamentals of Business

For a country-by-country listing of legally recognized business forms, see Types of
business entity.

Classifications
Wall Street, Manhattan is the location of the New York Stock Exchange and is often used
as a symbol for the world of business.citation needed

There are many types of businesses, and, as a result, businesses are classified in many
ways. One of the most common focuses on the primary profit-generating activities of a
business:

      Agriculture and mining businesses are concerned with the production of raw
       material, such as plants or minerals.
      Financial businesses include banks and other companies that generate profit
       through investment and management of capital.
      Information businesses generate profits primarily from the resale of intellectual
       property and include movie studios, publishers and packaged software companies.
      Manufacturers produce products, from raw materials or component parts, which
       they then sell at a profit. Companies that make physical goods, such as cars or
       pipes, are considered manufacturers.
      Real estate businesses generate profit from the selling, renting, and development
       of properties, homes, and buildings.
      Retailers and Distributors act as middle-men in getting goods produced by
       manufacturers to the intended consumer, generating a profit as a result of
       providing sales or distribution services. Most consumer-oriented stores and
       catalogue companies are distributors or retailers. See also: Franchising
      Service businesses offer intangible goods or services and typically generate a
       profit by charging for labor or other services provided to government, other
       businesses or consumers. Organizations ranging from house decorators to
       consulting firms to restaurants and even to entertainers are types of service
       businesses.
      Transportation businesses deliver goods and individuals from location to location,
       generating a profit on the transportation costs
      Utilities produce public services, such as heat, electricity, or sewage treatment,
       and are usually government chartered.

There are many other divisions and subdivisions of businesses. The authoritative list of
business types for North America is generally considered to be the North American
Industry Classification System, or NAICS. The equivalent European Union list is the
NACE.

Management
The study of the efficient and effective operation of a business is called management. The
main branches of management are financial management, marketing management, human


IMSA                                                                                       15
Fundamentals of Business

resource management, strategic management, production management, service
management, information technology management, and business intelligence.

See also:

               Management
               Business Operations

Government regulation
The Bank of England in Threadneedle Street, London, England.

Most legal jurisdictions specify the forms of ownership that a business can take, creating
a body of commercial law for each type.

Organizing

The major factors affecting how a business is organized are usually:

      The size and scope of the business, and its anticipated management and
       ownership. Generally a smaller business is more flexible, while larger businesses,
       or those with wider ownership or more formal structures, will usually tend to be
       organized as partnerships or (more commonly) corporations. In addition a
       business which wishes to raise money on a stock market or to be owned by a wide
       range of people will often be required to adopt a specific legal form to do so.
      The sector and country. Private profit making businesses are different from
       government owned bodies. In some countries, certain businesses are legally
       obliged to be organized certain ways.
      Limited liability. Corporations, limited liability partnerships, and other specific
       types of business organizations protect their owners from business failure by
       doing business under a separate legal entity with certain legal protections. In
       contrast, unincorporated businesses or persons working on their own are usually
       not so protected.
      Tax advantages. Different structures are treated differently in tax law, and may
       have advantages for this reason.
      Disclosure and compliance requirements. Different business structures may be
       required to make more or less information public (or reported to relevant
       authorities), and may be bound to comply with different rules and regulations.

Many businesses are operated through a separate entity such as a corporation, limited
partnership or limited liability company. Most legal jurisdictions allow people to organize
such an entity by filing certain charter documents with the relevant Secretary of State or
equivalent and complying with certain other ongoing obligations. The relationships and
legal rights of shareholders, limited partners, or members are governed partly by the
charter documents and partly by the law of the jurisdiction where the entity is organized.
Generally speaking, shareholders in a corporation, limited partners in a limited



IMSA                                                                                    16
Fundamentals of Business

partnership, and members in a limited liability company are shielded from personal
liability for the debts and obligations of the entity, which is legally treated as a separate
"person." This means that unless there is misconduct, the owner's own possessions are
strongly protected in law, if the business does not succeed.

Where two or more individuals own a business together but have failed to organize a
more specialized form of vehicle, they will be treated as a general partnership. The terms
of a partnership are partly governed by a partnership agreement if one is created, and
partly by the law of the jurisdiction where the partnership is located. No paperwork or
filing is necessary to create a partnership, and without an agreement, the relationships and
legal rights of the partners will be entirely governed by the law of the jurisdiction where
the partnership is located.

A single person who owns and runs a business is commonly known as a sole proprietor,
whether he or she owns it directly or through a formally organized entity.

A few relevant factors to consider in deciding how to operate a business include:

   1. General partners in a partnership (other than a limited liability partnership), plus
      anyone who personally owns and operates a business without creating a separate
      legal entity, are personally liable for the debts and obligations of the business.
   2. Generally, corporations are required to pay tax just like "real" people. In some tax
      systems, this can give rise to so-called double taxation, because first the
      corporation pays tax on the profit, and then when the corporation distributes its
      profits to its owners, individuals have to include dividends in their income when
      they complete their personal tax returns, at which point a second layer of income
      tax is imposed.
   3. In most countries, there are laws which treat small corporations differently than
      large ones. They may be exempt from certain legal filing requirements or labor
      laws, have simplified procedures in specialized areas, and have simplified,
      advantageous, or slightly different tax treatment.
   4. In order to "go public" (sometimes called IPO) -- which basically means to allow
      a part of the business to be owned by a wider range of investors or the public in
      general -- you must organize a separate entity, which is usually required to
      comply with a tighter set of laws and procedures. Most public entities are
      corporations that have sold shares, but increasingly there are also public LLCs
      that sell units (sometimes also called shares), and other more exotic entities as
      well (for example, REITs in the USA, Unit Trusts in the UK). However, you
      cannot take a general partnership "public."

Commercial law

Most commercial transactions are governed by a very detailed and well-established body
of rules that have evolved over a very long period of time, it being the case that
governing trade and commerce was a strong driving force in the creation of law and
courts in Western civilization.



IMSA                                                                                            17
Fundamentals of Business

As for other laws that regulate or impact businesses, in many countries it is all but
impossible to chronicle them all in a single reference source. There are laws governing
treatment of labor and generally relations with employees, safety and protection issues
(OSHA or Health and Safety), anti-discrimination laws (age, gender, disabilities, race,
and in some jurisdictions, sexual orientation), minimum wage laws, union laws, workers
compensation laws, and annual vacation or working hours time.

In some specialized businesses, there may also be licenses required, either due to special
laws that govern entry into certain trades, occupations or professions, which may require
special education, or by local governments. Professions that require special licenses range
from law and medicine to flying airplanes to selling liquor to radio broadcasting to selling
investment securities to selling used cars to roofing. Local jurisdictions may also require
special licenses and taxes just to operate a business without regard to the type of business
involved.

Some businesses are subject to ongoing special regulation. These industries include, for
example, public utilities, investment securities, banking, insurance, broadcasting,
aviation, and health care providers. Environmental regulations are also very complex and
can impact many kinds of businesses in unexpected ways.

Capital

When businesses need to raise money (called 'capital'), more laws come into play. A
highly complex set of laws and regulations govern the offer and sale of investment
securities (the means of raising money) in most Western countries. These regulations can
require disclosure of a lot of specific financial and other information about the business
and give buyers certain remedies. Because "securities" is a very broad term, most
investment transactions will be potentially subject to these laws, unless a special
exemption is available.

Capital may be raised through private means, by public offer (IPO) on a stock exchange,
or in many other ways. Major stock exchanges include the New York Stock Exchange
and Nasdaq (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange
(Japan), and so on. Most countries with capital markets have at least one.

Business that have gone "public" are subject to extremely detailed and complicated
regulation about their internal governance (such as how executive officers' compensation
is determined) and when and how information is disclosed to the public and their
shareholders. In the United States, these regulations are primarily implemented and
enforced by the United States Securities and Exchange Commission (SEC). Other
Western nations have comparable regulatory bodies.

As noted at the beginning, it is impossible to enumerate all of the types of laws and
regulations that impact on business today. In fact, these laws have become so numerous
and complex, that no business lawyer can learn them all, forcing increasing specialization
among corporate attorneys. It is not unheard of for teams of 5 to 10 attorneys to be
required to handle certain kinds of corporate transactions, due to the sprawling nature of


IMSA                                                                                     18
Fundamentals of Business

modern regulation. Commercial law spans general corporate law, employment and labor
law, healthcare law, securities law, M&A law (who specialize in acquisitions), tax law,
ERISA law (ERISA in the United States governs employee benefit plans), food and drug
regulatory law, intellectual property law (specializing in copyrights, patents, trademarks
and such), telecommunications law, and more.

In Thailand, for example, it is necessary to register a particular amount of capital for each
employee, and pay a fee to the government for the amount of capital registered. There is
no legal requirement to prove that this capital actually exists, the only requirement is to
pay the fee. Overall, processes like this are detrimental to the development and GDP of a
country, but often exist in "feudal" developing countries.

Intellectual property

Businesses often have important "intellectual property" that needs protection from
competitors in order for the company to stay profitable. This could require patents or
copyrights or preservation of trade secrets. Most businesses have names, logos and
similar branding techniques that could benefit from trademarking. Patents and copyrights
in the United States are largely governed by federal law, while trade secrets and
trademarking are mostly a matter of state law. Because of the nature of intellectual
property, a business needs protection in every jurisdiction in which they are concerned
about competitors. Many countries are signatories to international treaties concerning
intellectual property, and thus companies registered in these countries are subject to
national laws bound by these treaties. The treaties themselves are not intellectual
property.

Exit plans

Businesses can be bought and sold. Business owners often refer to their plan of disposing
of the business as an "exit plan." Common exit plans include IPOs, MBOs and mergers
with other businesses.


Business operations
Business operations are those ongoing recurring activities involved in the running of a
business for the purpose of producing value for the stakeholders. They are contrasted
with project management, and consist of business processes. The outcome of business
operations is the harvesting of value from assets owned by a business. Assets can be
either physical or intangible. An example of value derived from a physical asset like a
building is rent. An example of value derived from an intangible asset like an idea is a
royalty. The effort involved in "harvesting" this value is what constitutes business
operations.

Business operations encompasses three fundamental management imperatives that
collectively aim to maximize value harvested from business assets (this has often been
referred to as "sweating the assets"):


IMSA                                                                                       19
Fundamentals of Business

   1. Generate recurring income.
   2. Increase the value of the business assets.
   3. Secure the income and value of the business.

All three imperatives are mutually dependent. The following basic tenets illustrate this
interdependency:

      The more recurring income an asset generates, the more valuable it becomes. For
       example, the products that sell at the highest volumes and prices are usually
       considered to be the most valuable products in a business's product portfolio.

      The more valuable a product becomes the more recurring income it generates.
       For example, a luxury car can be leased out at a higher rate than a normal car.

      The intrinsic value and income-generating potential of an asset cannot be
       realized without a way to secure it. For example, petroleum deposits are worthless
       unless processes and equipment are developed and employed to extract, refine,
       and distribute it profitably.

The business model of a business describes the means by which the three management
imperatives are achieved. In this sense, business operations is the execution of the
business model.

Generating recurring income
This is the most straightforward and well-understood management imperative of business
operations. The primary goal of this imperative is to implement a sustained delivery of
goods and services to the business's customers at a cost that is less than the funds
acquired in exchange for said goods and services -- in short, making a profit.

The funds directly acquired by the business in exchange for the goods and services it
delivers is the business's revenue.

The cost of developing, producing, and delivering these goods and services is the
business's expenses.

A business whose revenues are greater than its expenses makes a profit. Such a business
is profitable. .

Securing the income and value of the business
      Desirability or demand for its goods and services
      Ability of its customers to pay for its goods and services
      Uniqueness and competitiveness of its business model
      Control exerted over the quality and efficiency of production activities
      Public regard for the business as a member of the community


IMSA                                                                                       20
Fundamentals of Business

A business that can harvest a significant amount of value from its assets but cannot
demonstrate an ability to sustain this effort cannot be considered a viable business.

See also
      Business process reengineering


Business process
A business process or business method collection of related, structured activities or
tasks that produce a specific service or product (serve a particular goal) for a particular
customer or customers. It often can be visualized with a flowchart as a sequence of
activities.

 Overview
There are three types of business processes:

   1. Management processes, the processes that govern the operation of a system.
      Typical management processes include "Corporate Governance" and "Strategic
      Management".
   2. Operational processes, processes that constitute the core business and create the
      primary value stream. Typical operational processes are Purchasing,
      Manufacturing, Marketing, and Sales.
   3. Supporting processes, which support the core processes. Examples include
      Accounting, Recruitment, Technical support.

A business process begins with a customer‘s need and ends with a customer‘s need
fulfillment. Process oriented organizations break down the barriers of structural
departments and try to avoid functional silos.

A business process can be decomposed into several sub-processes, which have their own
attributes, but also contribute to achieving the goal of the super-process. The analysis of
business processes typically includes the mapping of processes and sub-processes down
to activity level.

Business Processes are designed to add value for the customer and should not include
unnecessary activities. The outcome of a well designed business process is increased
effectiveness (value for the customer) and increased efficiency (less costs for the
company).

Business Processes can be modeled through a large number of methods and techniques.
For instance, the Business Process Modeling Notation is a Business Process Modeling
technique that can be used for drawing business processes in a workflow.



IMSA                                                                                          21
Fundamentals of Business

 History
Adam Smith

One of the first people to describe processes was Adam Smith in his famous (1776)
example of a pin factory. Inspired by an article in Diderot's Encyclopédie, Smith
described the production of a pin in the following way:

‖One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it
at the top for receiving the head: to make the head requires two or three distinct operations: to put
it on is a particular business, to whiten the pins is another ... and the important business of making
a pin is, in this manner, divided into about eighteen distinct operations, which in some
manufactories are all performed by distinct hands, though in others the same man will sometime
perform two or three of them.‖

Smith also first recognized how the output could be increased through the use of labor
division. Previously, in a society where production was dominated by handcrafted goods,
one man would perform all the activities required during the production process, while
Smith described how the work was divided into a set of simple tasks, which would be
performed by specialized workers. The result of labor division in Smith‘s example
resulted in productivity increasing by 24,000 percent (sic), i.e. that the same number of
workers made 240 times as many pins as they had been producing before the introduction
of labor division.

It is worth noting that Smith did not advocate labor division at any price and per se. The
appropriate level of task division was defined through experimental design of the
production process. In contrast to Smith's view which was limited to the same functional
domain and comprised activities that are in direct sequence in the manufacturing process,
today's process concept includes cross-functionality as an important characteristic.
Following his ideas the division of labor was adopted widely, while the integration of
tasks into functional, or cross-functional, processes was not considered as an alternative
option until much later.

Other definitions

In the early 1990s, US corporations, and subsequently companies all over the world,
started to adopt the concept of reengineering in an attempt to re-achieve the
competitiveness that they had lost during the previous decade. A key characteristic of
Business Process Reengineering (BPR) is the focus on business processes. Davenport
(1993)1 defines a (business) process as

‖a structured, measured set of activities designed to produce a specific output for a particular
customer or market. It implies a strong emphasis on how work is done within an organization, in
contrast to a product focus‘s emphasis on what. A process is thus a specific ordering of work
activities across time and space, with a beginning and an end, and clearly defined inputs and
outputs: a structure for action. ... Taking a process approach implies adopting the customer‘s




IMSA                                                                                                  22
Fundamentals of Business

point of view. Processes are the structure by which an organization does what is necessary to
produce value for its customers.‖

This definition contains certain characteristics a process must possess. These
characteristics are achieved by a focus on the business logic of the process (how work is
done), instead of taking a product perspective (what is done). Following Davenport's
definition of a process we can conclude that a process must have clearly defined
boundaries, input and output, that it consists of smaller parts, activities, which are ordered
in time and space, that there must be a receiver of the process outcome- a customer - and
that the transformation taking place within the process must add customer value.

Hammer & Champy‘s (1993)2 definition can be considered as a subset of Davenport‘s.
They define a process as

‖a collection of activities that takes one or more kinds of input and creates an output that is of
value to the customer.‖

As we can note, Hammer & Champy have a more transformation oriented perception,
and put less emphasis on the structural component – process boundaries and the order of
activities in time and space.

Rummler & Brache (1995)3 use a definition that clearly encompasses a focus on the
organization‘s external customers, when stating that

‖a business process is a series of steps designed to produce a product or service. Most processes
(...) are cross-functional, spanning the ‗white space‘ between the boxes on the organization chart.
Some processes result in a product or service that is received by an organization's external
customer. We call these primary processes. Other processes produce products that are invisible to
the external customer but essential to the effective management of the business. We call these
support processes.‖

The above definition distinguishes two types of processes, primary and support
processes, depending on whether a process is directly involved in the creation of
customer value, or concerned with the organization‘s internal activities. In this sense,
Rummler and Brache's definition follows Porter's value chain model, which also builds
on a division of primary and secondary activities. According to Rummler and Brache, a
typical characteristic of a successful process-based organization is the absence of
secondary activities in the primary value flow that is created in the customer oriented
primary processes. The characteristic of processes as spanning the white space on the
organization chart indicates that processes are embedded in some form of organizational
structure. Also, a process can be cross-functional, i.e. it ranges over several business
functions.

Finally, let us consider the process definition of Johansson et al. (1993)4. They define a
process as




IMSA                                                                                                 23
Fundamentals of Business

‖a set of linked activities that take an input and transform it to create an output. Ideally, the
transformation that occurs in the process should add value to the input and create an output that is
more useful and effective to the recipient either upstream or downstream.‖

This definition also emphasizes the constitution of links between activities and the
transformation that takes place within the process. Johansson et.al. also include the
upstream part of the value chain as a possible recipient of the process output.
Summarizing the four definitions above, we can compile the following list of
characteristics for a business process.

    1. Definability : It must have clearly defined boundaries, input and output.
    2. Order : It must consist of activities that are ordered according to their position in
       time and space.
    3. Customer : There must be a recipient of the process' outcome, a customer.
    4. Value-adding : The transformation taking place within the process must add value
       to the recipient, either upstream or downstream.
    5. Embeddedness : A process can not exist in itself, it must be embedded in an
       organizational structure.
    6. Cross-functionality : A process regularly can, but not necessarily must, span
       several functions.

Frequently, a process owner, i.e. a person being responsible for the performance and
continuous improvement of the process, is also considered as a prerequisite.

 Supporting theories and concepts
Division of labor

Frederick Winslow Taylor developed the concept of scientific management. The concept
contains aspects on the division of labor being relevant to the theory and practice around
business processes. The business process related aspects of Taylor's scientific
management concept are discussed in the article on Business Process Reengineering.

Span of control

The span of control is the number of sub-ordinates a supervisor manages within a
structural organization. Introducing a business process concept has a considerable impact
on the structural elements of the organization and thus also on the span of control.

Departmentalization by process and purpose

Large organizations that are not organized as markets need to be organized in smaller
units - departments - which can be defined according to different principles.

Information management concepts



IMSA                                                                                             24
Fundamentals of Business

Information Management and the organization design strategies being related to it, are a
theoretical cornerstone of the business process concept.


Business plan
A business plan is a formal statement of a set of business goals, the reasons why they are
believed attainable, and the plan for reaching those goals. It may also contain background
information about the organization or team attempting to reach those goals.

The business goals may be defined for for-profit or for non-profit organizations. For-
profit business plans typically focus on financial goals, such as profit or creation of
wealth. Non-profit and government agency business plans tend to focus on organizational
mission which is the basis for their governmental status or their non-profit, tax-exempt
status, respectively -- although non-profits may also focus on optimizing revenue. In non-
profit organizations, creative tensions may develop in the effort to balance mission with
"margin" (or revenue). Business plans may also target changes in perception and
branding by the customer, client, tax-payer, or larger community. A business plan having
changes in perception and branding as its primary goals is called a marketing plan.

Business plans may be internally or externally focused. Externally focused plans target
goals that are important to external stakeholders, particularly financial stakeholders. They
typically have detailed information about the organization or team attempting to reach the
goals. With for-profit entities, external stakeholders include investors and customers.1
External stake-holders of non-profits include donors and the clients of the non-profit's
services.2 For government agencies, external stakeholders include tax-payers, higher-
level government agencies, and international lending bodies such as the IMF, the World
Bank, various economic agencies of the UN, and development banks.

Internally focused business plans target intermediate goals required to reach the external
goals. They may cover the development of a new product, a new service, a new IT
system, a restructuring of finance, the refurbishing of a factory or a restructuring of the
organization. An internal business plan is often developed in conjunction with a balanced
scorecard or a list of critical success factors. This allows success of the plan to be
measured using non-financial measures. Business plans that identify and target internal
goals, but provide only general guidance on how they will be met are called strategic
plans.

Operational plans describe the goals of an internal organization, working group or
department.3 Project plans, sometimes known as project frameworks, describe the goals
of a particular project. They may also address the project's place within the organization's
larger strategic goals.45

 Business Plan Content
For more details on this topic, see Content of a business plan.



IMSA                                                                                     25
Fundamentals of Business

Business plans are decision-making tools. There is no fixed content for a business plan.
Rather the content and format of the business plan is determined by the goals and
audience. A business plan should contain whatever information is needed to decide
whether or not to pursue a goal.

For example, a business plan for a non-profit might discuss the fit between the business
plan and the organization‘s mission. Banks are quite concerned about defaults, so a
business plan for a bank loan will build a convincing case for the organization‘s ability to
repay the loan. Venture capitalists are primarily concerned about initial investment,
feasibility, and exit valuation. A business plan for a project requiring equity financing
will need to explain why current resources, upcoming growth opportunities, and
sustainable competitive advantage will lead to a high exit valuation.

Preparing a business plan draws on a wide range of knowledge from many different
business disciplines: finance, human resource management, intellectual property
management, supply chain management, operations management, and marketing, among
others.6. It can be helpful to view the business plan as a collection of sub-plans, one for
each of the main business disciplines.7

"...a good business plan can help to make a good business credible, understandable, and
attractive to someone who is unfamiliar with the business. Writing a good business plan
can‘t guarantee success, but it can go a long way toward reducing the odds of failure." 8

Business
Support services

      books, portals, and other sources of written information
      consulting services
      electronic planning templates (software)
      face to face help: mentoring programs, training courses
           o Australia: New Enterprise Incentive Scheme (NEIS)
           o Germany: Bundesministerium für Wirtschaft und Technologie (BMWi) 1.
           o Morocco: CRI (Centre Régional d'Investisment)
           o Pakistan: SMEDA (Small and medium enterprise development authority)
           o UK: Business Link
           o USA: SCORE, SBA centers, Small Business Development Centers
           o Canada: Industry Canada, 2
           o India : Allindialive Business Planing Portal,3
           o Switzerland : venturelab (Förderprogramm der Bundes für innovative
               Start-ups mit Wachstumspotenzial)
           o Portugal: Empresa na hora (company registration and creation in one day
               and on-line - http://www.empresanahora.pt/)
           o Italy: Business Innovation Centre La Fucina 4.
           o Other countries: needs research




IMSA                                                                                     26
Fundamentals of Business

Strategic Analysis

      Industry Assessment
          o The macroenvironment
          o Customer Strategy & Market Analysis
      Competitor Analysis
          o Porter 5 forces analysis

Forecasts: Modeling Techniques

Presentation Formats
The format of a business plan depends on its presentation context. It is not uncommon for
businesses, especially start-ups to have three or four formats for the same business plan:

      an "elevator pitch" - a three minute summary of the business plan's executive
       summary. This is often used as a teaser to awaken the interest of potential funders,
       customers, or strategic partners.

      an oral presentation - a hopefully entertaining slide show and oral narrative that is
       meant to trigger discussion and interest potential investors in reading the written
       presentation. The content of the presentation is usually limited to the executive
       summary and a few key graphs showing financial trends and key decision making
       benchmarks. If a new product is being proposed and time permits, a
       demonstration of the product may also be included.

      a written presentation for external stakeholders - a detailed, well written, and
       pleasingly formatted plan targeted at external stakeholders.

      an internal operational plan - a detailed plan describing planning details that are
       needed by management but may not be of interest to external stakeholders. Such
       plans have a somewhat higher degree of candor and informality than the version
       targeted at external stakeholders.

Typical structure for a business plan9

      cover page and table of contents
      executive summary
      business description
      business environment analysis
      industry background
      competitive analysis
      market analysis
      marketing plan
      operations plan
      management summary


IMSA                                                                                      27
Fundamentals of Business

      financial plan
      attachments and milestone

Revisiting the Business Plan
Cost overruns and revenue shortfalls

Cost and revenue estimates are central to any business plan for deciding the viability of
the planned venture. But costs are often underestimated and revenues overestimated
resulting in later cost overruns, revenue shortfalls, and possibly non-viability. During the
dot-com bubble 1997-2001 this was a problem for many technology start-ups. However,
the problem is not limited to technology or the private sector; public works projects also
routinely suffer from cost overruns and/or revenue shortfalls. The main causes of cost
overruns and revenue shortfalls are optimism bias and strategic misrepresentation.1011
Reference class forecasting has been developed to reduce the risks of cost overruns and
revenue shortfalls.

Legal and Liability Issues
Disclosure requirements

An externally targeted business plan should list all legal concerns and financial liabilities
that might negatively affect investors. Depending on the amount of funds being raised
and the audience to whom the plan is presented, failure to do this may have severe legal
consequences.

Limitations on content and audience

Non disclosure agreements (NDAs) with third parties, non-compete agreements, conflicts
of interest, privacy concerns, and the protection of one's trade secrets may severely limit
the audience to which one might show the business plan. Alternatively, they may require
each party receiving the business plan to sign a contract accepting special clauses and
conditions.

This situation is complicated by the fact that many venture capitalists will refuse to sign
an NDA before looking at a business plan, lest it put them in the untenable position of
looking at two independently developed look-alike business plans, both claiming
originality. In such situations one may need to develop two versions of the business plan:
a stripped down plan that can be used to develop a relationship and a detail plan that is
only shown when investors have sufficient interest and trust to sign an NDA.

Open Business Plans
Traditionally business plans have been highly confidential and quite limited in audience.
The business plan itself is generally regarded as secret. However the emergence of free


IMSA                                                                                       28
Fundamentals of Business

software and open source has opened the model and made the notion of an open business
plan possible.

An Open Business Plan is a business plan with unlimited audience. The business plan is
typically web published and made available to all.

In the free software and open source business model, trade secrets, copyright and patents
can no longer be used as effective locking mechanisms to provide sustainable advantages
to a particular business and therefore a secret business plan is less relevant in those
models.

While the origin of the Open Business Plan model is in the free software and Libre
services arena, the concept is likely applicable to other domains.

How Business Plans are Used
Venture Capital

      business plan contests - provides a way for venture capitals to find promising
       projects
      venture capital assessment of business plans - focus on qualitative factors such as
       team.

Public Offerings

      in a public offering, potential investors can evaluate perspectives of issuing
       company

Within Corporations

Fundraising
Fundraising is the primary purpose for many business plans, since they are related to the
inherent probable success/failure of the company risk.

Total Quality Management
Total Quality Management (TQM) is a business management strategy aimed at
embedding awareness of quality in all organizational processes. TQM has been widely
used in manufacturing, education, call centers, government, and service industries, as
well as NASA space and science programs.

Management by Objective
       For more information see Management by objectives




IMSA                                                                                     29
Fundamentals of Business

Management by Objectives (MBO) is a process of agreeing upon objectives within an
organization so that management and employees agree to the objectives and understand
what they are in the organization.

Strategic Planning
Strategic planning is an organization's process of defining its strategy, or direction, and
making decisions on allocating its resources to pursue this strategy, including its capital
and people. Various business analysis techniques can be used in strategic planning,
including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ) and
PEST analysis (Political, Economic, Social, and Technological analysis) or STEER
analysis involving Socio-cultural, Technological, Economic, Ecological, and Regulatory
factors and EPISTELS (Environment, Political, Informative, Social, Technological,
Economic, Legal and Spiritual)

Education

K-12
Business plans are used in some primary and secondary programs to teach economic
principles.12 Wikiversity has a Lunar Boom Town project where students of all ages can
collaborate with designing and revising business models and practice evaluating them to
learn practical business planning techniques and methodology.

Higher Education
      BA, MBA programs
         o integrative team projects
         o projects for specific course work
         o Business plan contests


Satires of Business Plans
The business plan is the subject of many satires. Satires are used both to express cynicism
about business plans and as an educational tool to improve the quality of business plans.
For example,

      Five Criteria for a successful business plan in biotech uses Dilbert comic strips to
       remind people of what not to do when researching and writing a business plan for
       a biotech start-up. Scott Adams, the author of Dilbert, is an MBA graduate (U.C.
       Berkeley) who sees humor as a critical tool that can improve the behavior of
       businesses and their managers.13 He has written numerous critiques of business
       practices, including business planning. The website Dilbert.com - Games has a
       mission statement generator that satirizes the wording often found in mission
       statements. His book The Dilbert Principle – A Cubicle‘s Eye View of Bosses,
       Meetings, Management Fads & Other Workplace Afflictions discusses the foibles


IMSA                                                                                     30
Fundamentals of Business

       of management and their plans as depicted in the Dilbert comic strips by Scott
       Adams.

      In the article "South Park's" Investing Lesson, the The Motley Fool columnist
       "Fool on the Hill" uses the Underpants Gnomes to illustrate the fallacy of
       focusing on goals without a clear implementation strategy. The Underpants
       Gnomes episode satirizes the business plans of the Dot-com era.


Marketing plan
A marketing plan is a written document that details the necessary actions to achieve one
or more marketing objectives. It can be for a product or service, a brand, or a product
line. Marketing plans cover between one and five years.

A marketing plan may be part of an overall business plan. Solid marketing strategy is the
foundation of a well-written marketing plan. While a marketing plan contains a list of
actions, a marketing plan without a sound strategic foundation is of little use.




 The marketing planning process




The marketing process model based on the publications of Philip Kotler. It consists of 5
steps, beginning with the market & environment research. After fixing the targets and
setting the strategies, they will be realised by the marketing mix in step 4. The last step in
the process is the marketing controlling.

In most organizations, "strategic planning" is an annual process, typically covering just
the year ahead. Occasionally, a few organizations may look at a practical plan which
stretches three or more years ahead.

To be most effective, the plan has to be formalized, usually in written form, as a formal
"marketing plan." The essence of the process is that it moves from the general to the
specific; from the overall objectives of the organization down to the individual action
plan for a part of one marketing program. It is also an interactive process, so that the draft
output of each stage is checked to see what impact it has on the earlier stages - and is
amended.


IMSA                                                                                        31
Fundamentals of Business

 Marketing planning aims and objectives
Behind the corporate objectives, which in themselves offer the main context for the
marketing plan, will lay the "corporate mission"; which in turn provides the context for
these corporate objectives.

This "corporate mission" can be thought of as a definition of what the organization is; of
what it does: "Our business is …". This definition should not be too narrow, or it will
constrict the development of the organization; a too rigorous concentration on the view
that "We are in the business of making meat-scales," as IBM was during the early 1900s,
might have limited its subsequent development into other areas. On the other hand, it
should not be too wide or it will become meaningless; "We want to make a profit" is not
too helpful in developing specific plans.
Abell suggested that the definition should cover three dimensions: "customer groups" to
be served, "customer needs" to be served, and "technologies" to be utilized 1. Thus, the
definition of IBM's "corporate mission" in the 1940s might well have been: "We are in
the business of handling accounting information customer need for the larger US
organizations customer group by means of punched cards technology."
Perhaps the most important factor in successful marketing is the "corporate vision."
Surprisingly, it is largely neglected by marketing textbooks; although not by the popular
exponents of corporate strategy - indeed, it was perhaps the main theme of the book by
Peters and Waterman, in the form of their "Superordinate Goals." "In Search of
Excellence" said: "Nothing drives progress like the imagination. The idea precedes the
deed." 2 If the organization in general, and its chief executive in particular, has a strong
vision of where its future lies, then there is a good chance that the organization will
achieve a strong position in its markets (and attain that future). This will be not least
because its strategies will be consistent; and will be supported by its staff at all levels. In
this context, all of IBM's marketing activities were underpinned by its philosophy of
"customer service"; a vision originally promoted by the charismatic Watson dynasty. The
emphasis at this stage is on obtaining a complete and accurate picture.

In a single organization, however, it is likely that only a few aspects will be sufficiently
important to have any significant impact on the marketing plan; but all may need to be
reviewed to determine just which "are" the few.

A "traditional" - albeit product-based - format for a "brand reference book" (or, indeed, a
"marketing facts book") was suggested by Godley more than three decades ago:

   1. Financial data --Facts for this section will come from management accounting,
      costing and finance sections.
   2. Product data --From production, research and development.
   3. Sales and distribution data - Sales, packaging, distribution sections.
   4. Advertising, sales promotion, merchandising data - Information from these
      departments.
   5. Market data and miscellany - From market research, who would in most cases act
      as a source for this information. His sources of data, however, assume the
      resources of a very large organization. In most organizations they would be


IMSA                                                                                        32
Fundamentals of Business

       obtained from a much smaller set of people (and not a few of them would be
       generated by the marketing manager alone).


It is apparent that a marketing audit can be a complex process, but the aim is simple: "it is
only to identify those existing (external and internal) factors which will have a significant
impact on the future plans of the company." It is clear that the basic material to be input
to the marketing audit should be comprehensive.
Accordingly, the best approach is to accumulate this material continuously, as and when
it becomes available; since this avoids the otherwise heavy workload involved in
collecting it as part of the regular, typically annual, planning process itself - when time is
usually at a premium.
Even so, the first task of this annual process should be to check that the material held in
the current facts book or facts files actually is comprehensive and accurate, and can form
a sound basis for the marketing audit itself.
The structure of the facts book will be designed to match the specific needs of the
organization, but one simple format - suggested by Malcolm McDonald - may be
applicable in many cases. This splits the material into three groups:

   1. Review of the marketing environment. A study of the organization's markets,
      customers, competitors and the overall economic, political, cultural and technical
      environment; covering developing trends, as well as the current situation.
   2. Review of the detailed marketing activity. A study of the company's marketing
      mix; in terms of the 7 Ps - (see below)
   3. Review of the marketing system. A study of the marketing organization,
      marketing research systems and the current marketing objectives and strategies.
      The last of these is too frequently ignored. The marketing system itself needs to
      be regularly questioned, because the validity of the whole marketing plan is
      reliant upon the accuracy of the input from this system, and `garbage in, garbage
      out' applies with a vengeance.

           
                   o
                      Portfolio planning. In addition, the coordinated planning of the
                       individual products and services can contribute towards the
                       balanced portfolio.
                      80:20 rule. To achieve the maximum impact, the marketing plan
                       must be clear, concise and simple. It needs to concentrate on the 20
                       per cent of products or services, and on the 20 per cent of
                       customers, which will account for 80 per cent of the volume and
                       80 per cent of the profit.
                      7 P's: Product, Place, Price and Promotion, Physical Environment,
                       People, Process. The 7 P's can sometimes divert attention from the
                       customer, but the framework they offer can be very useful in
                       building the action plans.




IMSA                                                                                       33
Fundamentals of Business



It is only at this stage (of deciding the marketing objectives) that the active part of the
marketing planning process begins'. This next stage in marketing planning is indeed the
key to the whole marketing process.
The "marketing objectives" state just where the company intends to be; at some specific
time in the future.
James Quinn succinctly defined objectives in general as: Goals (or objectives) state what
is to be achieved and when results are to be accomplished, but they do not state 'how' the
results are to be achieved.3 They typically relate to what products (or services) will be
where in what markets (and must be realistically based on customer behavior in those
markets). They are essentially about the match between those "products" and "markets."
Objectives for pricing, distribution, advertising and so on are at a lower level, and should
not be confused with marketing objectives. They are part of the marketing strategy
needed to achieve marketing objectives. To be most effective, objectives should be
capable of measurement and therefore "quantifiable." This measurement may be in terms
of sales volume, money value, market share, percentage penetration of distribution outlets
and so on. An example of such a measurable marketing objective might be "to enter the
market with product Y and capture 10 per cent of the market by value within one year."
As it is quantified it can, within limits, be unequivocally monitored; and corrective action
taken as necessary.

The marketing objectives must usually be based, above all, on the organization's financial
objectives; converting these financial measurements into the related marketing
measurements.He went on to explain his view of the role of "policies," with which
strategy is most often confused: "Policies are rules or guidelines that express the 'limits'
within which action should occur."Simplifying somewhat, marketing strategies can be
seen as the means, or "game plan," by which marketing objectives will be achieved and,
in the framework that we have chosen to use, are generally concerned with the 7 P's.
Examples are:

   1.   Price- The amount of money needed to buy products
   2.   Product- The actual product
   3.   Promotion (advertising)- Getting the product known
   4.   Placement- Where the product is located
   5.   People- Represent the business
   6.   Physical environment- The ambiance, mood, or tone of the environment
   7.   Process- How do people obtain your product


In principle, these strategies describe how the objectives will be achieved. The 7 P's are a
useful framework for deciding how the company's resources will be manipulated
(strategically) to achieve the objectives. It should be noted, however, that they are not the
only framework, and may divert attention from the real issues. The focus of the strategies
must be the objectives to be achieved - not the process of planning itself. Only if it fits
the needs of these objectives should you choose, as we have done, to use the framework
of the 7 P's.


IMSA                                                                                      34
Fundamentals of Business

The strategy statement can take the form of a purely verbal description of the strategic
options which have been chosen. Alternatively, and perhaps more positively, it might
include a structured list of the major options chosen.

One aspect of strategy which is often overlooked is that of "timing." Exactly when it is
the best time for each element of the strategy to be implemented is often critical. Taking
the right action at the wrong time can sometimes be almost as bad as taking the wrong
action at the right time. Timing is, therefore, an essential part of any plan; and should
normally appear as a schedule of planned activities.Having completed this crucial stage
of the planning process, you will need to re-check the feasibility of your objectives and
strategies in terms of the market share, sales, costs, profits and so on which these demand
in practice. As in the rest of the marketing discipline, you will need to employ judgment,
experience, market research or anything else which helps you to look at your conclusions
from all possible angles.

===Detailed plans and programs===
At this stage, you will need to develop your overall marketing strategies into detailed
plans and program. Although these detailed plans may cover each of the 7 P's, the focus
will vary, depending upon your organization's specific strategies. A product-oriented
company will focus its plans for the 7 P's around each of its products. A market or
geographically oriented company will concentrate on each market or geographical area.
Each will base its plans upon the detailed needs of its customers, and on the strategies
chosen to satisfy these needs.

Again, the most important element is, indeed, that of the detailed plans; which spell out
exactly what programs and individual activities will take place over the period of the plan
(usually over the next year). Without these specified - and preferably quantified -
activities the plan cannot be monitored, even in terms of success in meeting its
objectives.It is these programs and activities which will then constitute the "marketing"
of the organization over the period. As a result, these detailed marketing programs are the
most important, practical outcome of the whole planning process. These plans should
therefore be:

      Clear - They should be an unambiguous statement of 'exactly' what is to be done.
      Quantified - The predicted outcome of each activity should be, as far as possible,
       quantified; so that its performance can be monitored.
      Focused - The temptation to proliferate activities beyond the numbers which can
       be realistically controlled should be avoided. The 80:20 Rule applies in this
       context too.
      Realistic - They should be achievable.
      Agreed - Those who are to implement them should be committed to them, and
       agree that they are achievable. The resulting plans should become a working
       document which will guide the campaigns taking place throughout the
       organization over the period of the plan. If the marketing plan is to work, every
       exception to it (throughout the year) must be questioned; and the lessons learned,
       to be incorporated in the next year's planning.



IMSA                                                                                       35
Fundamentals of Business

 Content of the marketing plan
A marketing plan for a small business typically includes Small Business Administration
Description of competitors, including the level of demand for the product or service and
the strengths and weaknesses of competitors

    1. Description of the product or service, including special features
    2. Marketing budget, including the advertising and promotional plan
    3. Description of the business location, including advantages and disadvantages for
       marketing
    4. Pricing strategy
    5. Market Segmentation

Medium-sized and large organizations

The main contents of a marketing plan are:citation needed

    1. Executive Summary
    2. Situational Analysis
    3. Opportunities / Issue Analysis - SWOT Analysis
    4. Objectives
    5. Strategy
    6. Action Program (the operational marketing plan itself for the period under
       review)
    7. Financial Forecast
    8. Controls

In detail, a complete marketing plan typically includes:citation needed

    1. Title page
    2. Executive Summary
    3. Current Situation - Macroenvironment
           o economy
           o legal
           o government
           o technology
           o ecological
           o sociocultural
           o supply chain
    4. Current Situation - Market Analysis
           o market definition
           o market size
           o market segmentation
           o industry structure and strategic groupings
           o Porter 5 forces analysis
           o competition and market share



IMSA                                                                                   36
Fundamentals of Business

          o  competitors' strengths and weaknesses
          o  market trends
   5. Current Situation - Consumer Analysis 4
          o nature of the buying decision
          o participants
          o demographics
          o psychographics
          o buyer motivation and expectations
          o loyalty segments
   6. Current Situation - Internal
          o company resources
                  financial
                  people
                  time
                  skills
          o objectives
                  mission statement and vision statement
                  corporate objectives
                  financial objective
                  marketing objectives
                  long term objectives
                  description of the basic business philosophy
          o corporate culture
   7. Summary of Situation Analysis
          o external threats
          o external opportunities
          o internal strengths
          o internal weaknesses
          o Critical success factors in the industry
          o our sustainable competitive advantage
   8. Marketing research
          o information requirements
          o research methodology
          o research results
   9. Marketing Strategy - Product
          o product mix
          o product strengths and weaknesses
                  perceptual mapping
          o product life cycle management and new product development
          o Brand name, brand image, and brand equity
          o the augmented product
          o product portfolio analysis
                  B.C.G. Analysis
                  contribution margin analysis
                  G.E. Multi Factoral analysis
                  Quality Function Deployment
   10. Marketing Strategy 5 - segmented marketing actions and market share objectives


IMSA                                                                                37
Fundamentals of Business

          o   by product,
          o   by customer segment,
          o   by geographical market,
          o   by distribution channel.
   11. Marketing Strategy - Price
          o pricing objectives
          o pricing method (eg.: cost plus, demand based, or competitor indexing)
          o pricing strategy (eg.: skimming, or penetration)
          o discounts and allowances
          o price elasticity and customer sensitivity
          o price zoning
          o break even analysis at various prices
   12. Marketing Strategy - promotion
          o promotional goals
          o promotional mix
          o advertising reach, frequency, flights, theme, and media
          o sales force requirements, techniques, and management
          o sales promotion
          o publicity and public relations
          o electronic promotion (eg.: Web, or telephone)
          o word of mouth marketing (buzz)
          o viral marketing
   13. Marketing Strategy - Distribution
          o geographical coverage
          o distribution channels
          o physical distribution and logistics
          o electronic distribution
   14. Implementation
          o personnel requirements
                   assign responsibilities
                   give incentives
                   training on selling methods
          o financial requirements
          o management information systems requirements
          o month-by-month agenda
                   PERT or critical path analysis
          o monitoring results and benchmarks
          o adjustment mechanism
          o contingencies (What if's)
   15. Financial Summary
          o assumptions
          o pro-forma monthly income statement
          o contribution margin analysis
          o breakeven analysis
          o Monte Carlo method
          o ISI: Internet Strategic Intelligence
   16. Scenarios


IMSA                                                                                38
Fundamentals of Business

           o Prediction of Future Scenarios
           o Plan of Action for each Scenario
   17. Appendix
          o pictures and specifications of the new product
          o results from research already completed


Measurement of progress
The final stage of any marketing planning process is to establish targets (or standards) so
that progress can be monitored. Accordingly, it is important to put both quantities and
timescales into the marketing objectives (for example, to capture 20 per cent by value of
the market within two years) and into the corresponding strategies.

Changes in the environment mean that the forecasts often have to be changed. Along with
these, the related plans may well also need to be changed. Continuous monitoring of
performance, against predetermined targets, represents a most important aspect of this.
However, perhaps even more important is the enforced discipline of a regular formal
review. Again, as with forecasts, in many cases the best (most realistic) planning cycle
will revolve around a quarterly review. Best of all, at least in terms of the quantifiable
aspects of the plans, if not the wealth of backing detail, is probably a quarterly rolling
review - planning one full year ahead each new quarter. Of course, this does absorb more
planning resource; but it also ensures that the plans embody the latest information, and -
with attention focused on them so regularly - forces both the plans and their
implementation to be realistic.

Plans only have validity if they are actually used to control the progress of a company:
their success lies in their implementation, not in the writing'.

Performance analysis
The most important elements of marketing performance, which are normally tracked, are:

Sales analysis

Most organizations track their sales results; or, in non-profit organizations for example,
the number of clients. The more sophisticated track them in terms of 'sales variance' - the
deviation from the target figures - which allows a more immediate picture of deviations
to become evident.. `Micro- analysis', which is a nicely pseudo-scientific term for the
normal management process of investigating detailed problems, then investigates the
individual elements (individual products, sales territories, customers and so on) which are
failing to meet targets.

Market share analysis

Few organizations track market share though it is often an important metric. Though
absolute sales might grow in an expanding market, a firm's share of the market can


IMSA                                                                                       39
Fundamentals of Business

decrease which bodes ill for future sales when the market starts to drop. Where such
market share is tracked, there may be a number of aspects which will be followed:

      overall market share
      segment share - that in the specific, targeted segment
      relative share -in relation to the market leaders
      annual fluctuation rate of market share

Expense analysis

The key ratio to watch in this area is usually the `marketing expense to sales ratio';
although this may be broken down into other elements (advertising to sales, sales
administration to sales, and so on).

Financial analysis

The `bottom line' of marketing activities should at least in theory, be the net profit (for all
except non-profit organizations, where the comparable emphasis may be on remaining
within budgeted costs). There are a number of separate performance figures and key
ratios which need to be tracked:

      gross contribution<>net profit
      gross profit<>return on investment
      net contribution<>profit on sales

There can be considerable benefit in comparing these figures with those achieved by
other organizations (especially those in the same industry); using, for instance, the figures
which can be obtained (in the UK) from `The Centre for Interfirm Comparison'. The most
sophisticated use of this approach, however, is typically by those making use of PIMS
(Profit Impact of Management Strategies), initiated by the General Electric Company and
then developed by Harvard Business School, but now run by the Strategic Planning
Institute.

The above performance analyses concentrate on the quantitative measures which are
directly related to short-term performance. But there are a number of indirect measures,
essentially tracking customer attitudes, which can also indicate the organization's
performance in terms of its longer-term marketing strengths and may accordingly be even
more important indicators. Some useful measures are:

      market research - including customer panels (which are used to track changes
       over time)
      lost business - the orders which were lost because, for example, the stock was not
       available or the product did not meet the customer's exact requirements
      customer complaints - how many customers complain about the products or
       services, or the organization itself, and about what

Use of marketing plans

IMSA                                                                                        40
Fundamentals of Business

A formal, written marketing plan is essential; in that it provides an unambiguous
reference point for activities throughout the planning period. However, perhaps the most
important benefit of these plans is the planning process itself. This typically offers a
unique opportunity, a forum, for information-rich and productively focused discussions
between the various managers involved. The plan, together with the associated
discussions, then provides an agreed context for their subsequent management activities,
even for those not described in the plan itself.

 Budgets as managerial tools
The classic quantification of a marketing plan appears in the form of budgets. Because
these are so rigorously quantified, they are particularly important. They should, thus,
represent an unequivocal projection of actions and expected results. What is more, they
should be capable of being monitored accurately; and, indeed, performance against
budget is the main (regular) management review process.

The purpose of a marketing budget is, thus, to pull together all the revenues and costs
involved in marketing into one comprehensive document. It is a managerial tool that
balances what is needed to be spent against what can be afforded, and helps make choices
about priorities. It is then used in monitoring performance in practice.

The marketing budget is usually the most powerful tool by which you think through the
relationship between desired results and available means. Its starting point should be the
marketing strategies and plans, which have already been formulated in the marketing plan
itself; although, in practice, the two will run in parallel and will interact. At the very least,
the rigorous, highly quantified, budgets may cause a rethink of some of the more
optimistic elements of the plans.


Business cycle




Economic activity in the US 1954–2005


IMSA                                                                                          41
Fundamentals of Business



Deviations from the long term growth trend US 1954–2005

The term business cycle (or economic cycle) refers to economy-wide fluctuations in
production or economic activity over several months or years. These fluctuations occur
around a long-term growth trend, and typically involve shifts over time between periods
of relatively rapid economic growth (expansion or boom), and periods of relative
stagnation or decline (contraction or recession).1

These fluctuations are often measured using the growth rate of real gross domestic
product. Despite being termed cycles, these fluctuations in economic activity do not
follow a mechanical or predictable periodic pattern.

 History
In 1860, French economist Clement Juglar identified the presence of economic cycles 8
to 11 years long, although he was cautious not to claim any rigid regularity.2 Later,
Austrian economist Joseph Schumpeter argued that a Juglar cycle has four stages: (i)
expansion (increase in production and prices, low interests rates); (ii) crisis (stock
exchanges crash and multiple bankruptcies of firms occur); (iii) recession (drops in prices
and in output, high interests rates); (iv) recovery (stocks recover because of the fall in
prices and incomes). In this model, recovery and prosperity are associated with increases
in productivity, consumer confidence, aggregate demand, and prices.

In the mid-20th century, Schumpeter and others proposed a typology of business cycles
according to its periodicity, so that a number of particular cycles were named after their
discoverers or proposers: 3

      the Kitchin inventory cycle of 3–5 years (after Joseph Kitchin);
      the Juglar fixed investment cycle of 7–11 years (often identified as 'the' business
       cycle);
      the Kuznets infrastructural investment cycle of 15–25 years (after Simon
       Kuznets);
      the Kondratieff wave or long technological cycle of 45–60 years (after Nikolai
       Kondratieff).

Interest in these different typologies of cycles has waned since the development of
modern macroeconomics, which gives little support to the idea of regular periodic cycles.

Business cycles after World War II were generally more restrained than the earlier
business cycles. Economic stabilization policy using fiscal policy and monetary policy
appeared to have dampened the worse excesses of business cycles. Automatic
stabilization due to the aspects of the government's budget also helped defeat the cycle
even without conscious action by policy-makers.




IMSA                                                                                       42
Fundamentals of Business

 Identifying
In 1946, economists Arthur F. Burns and Wesley C. Mitchell provided the now standard
definition of business cycles in their book Measuring Business Cycles:4

Business cycles are a type of fluctuation found in the aggregate economic activity of nations that
organize their work mainly in business enterprises: a cycle consists of expansions occurring at
about the same time in many economic activities, followed by similarly general recessions,
contractions, and revivals which merge into the expansion phase of the next cycle; in duration,
business cycles vary from more than one year to ten or twelve years; they are not divisible into
shorter cycles of similar characteristics with amplitudes approximating their own.

According to A. F. Burns:5

Business cycles are not merely fluctuations in aggregate economic activity. The critical feature
that distinguishes them from the commercial convulsions of earlier centuries or from the seasonal
and other short term variations of our own age is that the fluctuations are widely diffused over the
economy--its industry, its commercial dealings, and its tangles of finance. The economy of the
western world is a system of closely interrelated parts. He who would understand business cycles
must master the workings of an economic system organized largely in a network of free
enterprises searching for profit. The problem of how business cycles come about is therefore
inseparable from the problem of how a capitalist economy functions.

In the United States, it is generally accepted that the National Bureau of Economic
Research (NBER) is the final arbiter of the dates of the peaks and troughs of the business
cycle. An expansion is the period from a trough to a peak, and a recession as the period
from a peak to a trough. The NBER identifies a recession as "a significant decline in
economic activity spread across the economy, lasting more than a few months, normally
visible in real GDP, real income, employment, industrial production".6

Cycles or fluctuations?

In recent years economic theory has moved towards the study of economic fluctuation
rather than a 'business cycle'citation needed - though some economists use the phrase 'business
cycle' as a convenient shorthand. For Milton Friedman calling the business cycle a
"cycle" is a misnomer, because of its non-cyclical nature. Friedman believed that for the
most part, excluding very large supply shocks, business declines are more of a monetary
phenomenon.7

Rational expectations theory states that no deterministic cycle can persist because it
would consistently create arbitrage opportunities. Much economic theory also holds that
the economy is usually at or close to equilibrium. These views led to the formulation of
the idea that observed economic fluctuations can be modeled as shocks to a system.

In the tradition of Slutsky, business cycles can be viewed as the result of stochastic
shocks that on aggregate form a moving average series.




IMSA                                                                                             43
Fundamentals of Business

 Explaining
The explanation of fluctuations in aggregate economic activity is one of the primary
concerns of macroeconomics. The most commonly used framework for explaining such
fluctuations is Keynesian economics. In the Keynesian view, business cycles reflect the
possibility that the economy may reach short-run equilibrium at levels below or above
full employment. If the economy is operating with less than full employment, i.e., with
high unemployment, then in theory monetary policy and fiscal policy can have a positive
role to play rather than simply causing inflation or diverting funds to inefficient uses.

Keynesian models do not necessarily imply periodic business cycles. However, simple
Keynesian models involving the interaction of the Keynesian multiplier and accelerator
give rise to cyclical responses to initial shocks. Paul Samuelson's "oscillator model" is
supposed to account for business cycles thanks to the multiplier and the accelerator. The
amplitude of the variations in economic output depends on the level of the investment,
for investment determines the level of aggregate output (multiplier), and is determined by
aggregate demand (accelerator).

In the Keynesian tradition, Richard Goodwin accounts for cycles in output by the
distribution of income between business profits and workers wages. The fluctuations in
wages are the same as in the level of employment, for when the economy is at full-
employment, workers are able to demand rises in wages, whereas in periods of high
unemployment, wages tend to fall. According to Goodwin, when unemployment and
business profits rise, the output rises.

Keynesian economist Hyman Minski has proposed a explanation of cycles founded on
fluctuations in cr, interest rates and financial frailty. In an expansion period, interest rates
are low and companies easily borrow money from banks to invest. Banks are not
reluctant to grant them loans, because expanding economic activity allows business
increasing cash flows and therefore they will be able to easily pay back the loans. This
process leads to firms becoming excessively indebted, so that they stop investing, and the
economy goes into recession.

Keynesian views have been challenged by real business cycle models in which
fluctuations are due to technology shocks. This theory is most associated with Finn E.
Kydland and Edward C. Prescott. They consider that economic crisis and fluctuations
cannot stem from a monetary shock, only from an external shock, such as an innovation.

Following the tradition of Adam Smith and David Ricardo mainstream economists have
usually viewed the departures of the harmonic working of the market economy as due to
exogenous influences, such as the State or its regulations, labor unions, business
monopolies, or shocks due to technology or natural causes (e.g. sunspots for S. Jevons,
planet Venus movements for H. L. Moore). Contrarily, in the heterodox tradition of
Sismondi, Juglar, and Marx the recurrent upturns and downturns of the market system are
an endogenous characteristic of it.8




IMSA                                                                                         44
Fundamentals of Business

Mitigation

Most social indicators (mental health, crimes, suicides) worsen during economic
recessions. As periods of economic stagnation are painful for the many who lose their
jobs, there is often political pressure for governments to mitigate recessions. Since the
1940's, most governments of developed nations have seen the mitigation of the business
cycle as part of the responsibility of government.

Since in the Keynesian view, recessions are caused by inadequate aggregate demand,
when a recession occurs the government should increase the amount of aggregate demand
and bring the economy back into equilibrium. This the government can do in two ways,
firstly by increasing the money supply (expansionary monetary policy) and secondly by
increasing government spending or cutting taxes (expansionary fiscal policy).

However, even according to Keynesian theory, managing economic policy to smooth out
the cycle is a difficult task in a society with a complex economy. Some theorists, notably
those who believe in Marxist economics, believe that this difficulty is insurmountable.
Karl Marx claimed that recurrent business cycle crises were an inevitable result of the
operations of the capitalistic system. In this view, all that the government can do is to
change the timing of economic crises. The crisis could also show up in a different form,
for example as severe inflation or a steadily increasing government deficit. Worse, by
delaying a crisis, government policy is seen as making it more dramatic and thus more
painful.

Additionally, since the 1960's neoclassical economists have played down the ability of
Keynesian policies to manage an economy. Since the 1960s, economists like Nobel
Laureates Milton Friedman and Edmund Phelps have made ground in their arguments
that inflationary expectations negate the Phillips Curve in the long run. The stagflation of
the 1970's provided striking support for their theories, defying the simple Keynesian
prediction that recessions and inflation cannot occur together. Friedman has gone so far
as to argue that all the central bank of a country should do is to avoid making large
mistakes, as he believes they did by contracting the money supply very rapidly in the face
of the Stock Market Crash of 1929, in which they made what would have been a
recession into a great depression.

Alternative views
Politically-based business cycle

Another set of models tries to derive the business cycle from political decisions. The
partisan business cycle suggests that cycles result from the successive elections of
administrations with different policy regimes. Regime A adopts expansionary policies,
resulting in growth and inflation, but is voted out of office when inflation becomes
unacceptably high. The replacement, Regime B, adopts contractionary policies reducing
inflation and growth, and the downwards swing of the cycle. It is voted out of office
when unemployment is too high, being replaced by Party A.


IMSA                                                                                     45
Fundamentals of Business

The political business cycle is an alternative theory stating that when an administration of
any hue is elected, it initially adopts a contractionary policy to reduce inflation and gain a
reputation for economic competence. It then adopts an expansionary policy in the lead up
to the next election, hoping to achieve simultaneously low inflation and unemployment
on election day.

The political business cycle theory is strongly linked to the name of Michal Kalecki 9who
argued that no democratic government under capitalism would allow the persistence of
full employment, so that recessions would be caused by political decisions. Persistent full
employment would mean increasing workers' bargaining power to raise wages and to
avoid doing unpaid labor, potentially hurting profitability. (He did not see this theory as
applying under fascism, which would use direct force to destroy labor's power.) In recent
years, proponents of the "electoral business cycle" theory have argued that incumbent
politicians encourage prosperity before elections in order to ensure re-election -- and
make the citizens pay for it with recessions afterwards.

Marxian economics

For Marx the economy based on production of commodities to be sold in the market is
intrinsically prone to crisis. In the Marxian view profit is the major engine of the market
economy, but business (capital) profitability has a tendency to fall that recurrently creates
crises, in which mass unemployment occurs, businesses fail, remaining capital is
centralized and concentrated and profitability is recovered. In the long run these crises
tend to be more severe and the system will eventually fail.10 Some Marxist authors such
as Rosa Luxemburg viewed the lack of purchasing power of workers as a cause of a
tendency of supply to be larger than demand, creating crisis, in a model that has
similarities with the Keynesian one. Indeed a number of modern authors have tried to
combine Marx's and Keynes's views. Others have contrarily emphasized basic differences
between the Marxian and the Keynesian perspective: while Keynes saw capitalism as a
system worth maintaining and susceptible to efficient regulation, Marx viewed capitalism
as a historically doomed system that cannot be put under societal control11

Anarcho-syndicalist and libertarian socialist

According to anarcho-syndicalism and related anarchist-libertarian socialist economic
theories, the key to understanding the workings of the business cycle is the workers'
erosion of income as capital investment "pulls" money towards it over time, eventually
resulting in a collapse of demand for the goods the system produces.

In this theory, the fact that profit-seeking capitalists plan not with respect of demand at
the present moment, but with respect to future demand also drives the cycle. The need to
maximise profits results in more and more investment in order to improve the
productivity of the workforce (i.e. to increase the amount of surplus value produced). A
rise in productivity, however, means that whatever profit is produced is spread over an
increasing number of commodities. This profit still needs to be realised on the market but
this may prove difficult as capitalists produce not for existing markets but for expected
ones. As individual firms cannot predict what their competitors will do, it is rational for


IMSA                                                                                       46
Fundamentals of Business

them to try to maximise their market share by increasing production (by increasing
investment). As the market does not provide the necessary information to co-ordinate
their actions, this leads to supply exceeding demand and difficulties realising sufficient
profits. In other words, a period of over-production occurs due to the over-accumulation
of capital.

Anarcho-syndicalist theory holds that there are means by which capitalism can postpone
(but not stop) a general crisis developing as a result of the business cycle. The extension
of cr by banks to both investors and consumers is the traditional, and most common, way.
Imperialism, by which markets are increased and profits are extracted from less
developed countries and used to boost the imperialist countries profits, is another method.
Another is state intervention in the economy (such as minimum wages, the incorporation
of trades unions into the system, arms production, manipulating interest rates to maintain
a "natural" rate of unemployment to keep workers on their toes, etc.). Another is state
spending to increase aggregate demand, which can increase consumption and so lessen
the dangers of over-production. However, these are considered to have (objective and
subjective) limits and can never succeed in stopping depressions from occurring as they
ultimately flow from capitalist production and the need to make profits. 12

Austrian school

The Austrian School of economics rejects the suggestion that the business cycle is an
inherent feature of a market economy and argues that it is caused mainly by central
government intervention in the money supply. Austrian School economists, following
Ludwig von Mises, point to the role of the interest rate as the price of investment capital,
guiding investment decisions. In an unregulated (free-market) economy, where there is
no central bank, it is posited that the interest rate reflects the actual time preference of
lenders and borrowers. Some follow Knut Wicksell to call this the "natural" interest
rate.13

The government's attempt to gain control over money (through the creation of a central
bank) destroys the natural equilibrium of interest rates between savers and borrowers.
Austrian School economists conclude that, if the interest rate is held artificially low by
the government or central bank, then the demand for loans will be higher than the actual
supply of willing lenders, and if the interest rate is artificially high, the opposite situation
will occur. This pricing misinformation leads investors to misallocate capital, borrowing
and investing either too much or too little in long-term projects. Periodic recessions, then,
are seen as necessary "corrections" following periods of fiat cr expansion, when
unprofitable investments are liquidated, freeing capital for new investment.

The Austrian Business Cycle Theory also predicts that the imposition of artificially low
interest rates, and the resulting increase in the supply of fiat cr, generates price inflation
(often focused in capital or asset markets which employ many people). Once this
monetary "boom" is in effect, often governments become fearful of a correction to the
"monetary boom" given the negative employment effects of the inevitable correction.
This then obliges the central bank to increase the supply of cr yet further to maintain the
artificially low interest rate, thus prolonging the "fake" monetary boom and worsening


IMSA                                                                                         47
Fundamentals of Business

the inevitable "correction" when cr expansion can no longer be sustained. In Austrian
theory, depressions and recessions are positive forces in-so-much that they are the
market's natural mechanism of undoing the misallocation of resources present during the
―boom‖ or inflationary phase. Austrian School economists point to the dot-com
investment frenzy and the U.S. housing bubble as modern examples of artificially
abundant cr subsidizing unsustainable malinvestment.


Business ethics
Business ethics is a form of applied ethics that examines ethical principles and moral or
ethical problems that arise in a business environment. Applied ethics is a field of ethics
that deals with ethical questions in many fields such as medical, technical, legal and
business ethics. Business Ethics is the application of Ethical values to the business
world. It applies to any and all aspects of business conduct. Business ethics is
relevant to the conduct of individuals and also relevant to the conduct of the
business organizations as a whole. In the increasingly conscience-focused marketplaces
of the 21st century, the demand for more ethical business processes and actions (known
as ethicism) is increasing.1 Simultaneously, pressure is applied on industry to improve
business ethics through new public initiatives and laws (e.g. higher UK road tax for
higher-emission vehicles).2 Businesses can often attain short-term gains by acting in an
unethical fashion; however, such antics tend to undermine the economy over time.

Business ethics can be both a normative and a descriptive discipline. As a corporate
practice and a career specialization, the field is primarily normative. In academia
descriptive approaches are also taken. The range and quantity of business ethical issues
reflects the degree to which business is perceived to be at odds with non-economic social
values. Historically, interest in business ethics accelerated dramatically during the 1980s
and 1990s, both within major corporations and within academia. For example, today most
major corporate websites lay emphasis on commitment to promoting non-economic
social values under a variety of headings (e.g. ethics codes, social responsibility charters).
In some cases, corporations have redefined their core values in the light of business
ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).

 Overview of issues in business ethics
General business ethics

      This part of business ethics overlaps with the philosophy of business, one of the
       aims of which is to determine the fundamental purposes of a company. If a
       company's main purpose is to maximize the returns to its shareholders, then it
       should be seen as unethical for a company to consider the interests and rights of
       anyone else.3
      Corporate social responsibility or CSR: an umbrella term under which the ethical
       rights and duties existing between companies and society is debated.




IMSA                                                                                       48
Fundamentals of Business

      Issues regarding the moral rights and duties between a company and its
       shareholders: fiduciary responsibility, stakeholder concept v. shareholder concept.
      Ethical issues concerning relations between different companies: e.g. hostile take-
       overs, industrial espionage.
      Leadership issues: corporate governance.
      Political contributions made by corporations.
      Law reform, such as the ethical debate over introducing a crime of corporate
       manslaughter.
      The misuse of corporate ethics policies as marketing instruments.

See also: corporate abuse, corporate crime.



Ethics of accounting information
      Creative accounting, earnings management, misleading financial analysis.
      Insider trading, securities fraud, bucket shops, forex scams: concerns (criminal)
       manipulation of the financial markets.
      Executive compensation: concerns excessive payments made to corporate CEO's
       and top management.
      Bribery, kickbacks, facilitation payments: while these may be in the (short-term)
       interests of the company and its shareholders, these practices may be anti-
       competitive or offend against the values of society.

Cases: accounting scandals, Enron, WorldCom

Ethics of human resource management
The ethics of human resource management (HRM) covers those ethical issues arising
around the employer-employee relationship, such as the rights and duties owed between
employer and employee.

      Discrimination issues include discrimination on the bases of age (ageism), gender,
       race, religion, disabilities, weight and attractiveness. See also: affirmative action,
       sexual harassment.
      Issues arising from the traditional view of relationships between employers and
       employees, also known as At-will employment.
      Issues surrounding the representation of employees and the democratization of the
       workplace: union busting, strike breaking.
      Issues affecting the privacy of the employee: workplace surveillance, drug testing.
       See also: privacy.
      Issues affecting the privacy of the employer: whistle-blowing.
      Issues relating to the fairness of the employment contract and the balance of
       power between employer and employee: slavery,4 indentured servitude,
       employment law.
      Occupational safety and health.


IMSA                                                                                      49
Fundamentals of Business

All of the above are also related to the hiring and firing of employees. A employee or
future employee can not be hired or fired based on race, age, gender, religion, or any
other disciminatory act.

Ethics of sales and marketing
Main article: marketing ethics

Marketing, which goes beyond the mere provision of information about (and access to) a
product, may seek to manipulate our values and behavior. To some extent society regards
this as acceptable, but where is the ethical line to be drawn? Marketing ethics overlaps
strongly with media ethics, because marketing makes heavy use of media. However,
media ethics is a much larger topic and extends outside business ethics.

      Pricing: price fixing, price discrimination, price skimming.
      Anti-competitive practices: these include but go beyond pricing tactics to cover
       issues such as manipulation of loyalty and supply chains. See: anti-competitive
       practices, antitrust law.
      Specific marketing strategies: greenwash, bait and switch, shill, viral marketing,
       spam (electronic), pyramid scheme, planned obsolescence.
      Content of advertisements: attack ads, subliminal messages, sex in advertising,
       products regarded as immoral or harmful
      Children and marketing: marketing in schools.
      Black markets, grey markets.

See also: memespace, disinformation, advertising techniques, false advertising,
advertising regulation

Cases: Benetton.

Ethics of production
This area of business ethics deals with the duties of a company to ensure that products
and production processes do not cause harm. Some of the more acute dilemmas in this
area arise out of the fact that there is usually a degree of danger in any product or
production process and it is difficult to define a degree of permissibility, or the degree of
permissibility may depend on the changing state of preventative technologies or changing
social perceptions of acceptable risk.

      Defective, addictive and inherently dangerous products and services (e.g. tobacco,
       alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).
      Ethical relations between the company and the environment: pollution,
       environmental ethics, carbon emissions trading
      Ethical problems arising out of new technologies: genetically modified food,
       mobile phone radiation and health.
      Product testing ethics: animal rights and animal testing, use of economically
       disadvantaged groups (such as students) as test objects.



IMSA                                                                                      50
Fundamentals of Business

See also: product liability

Cases: Ford Pinto scandal, Bhopal disaster, asbestos / asbestos and the law, Peanut
Corporation of America.

Ethics of intellectual property, knowledge and skills
Knowledge and skills are valuable but not easily "ownable" as objects. Nor is it obvious
who has the greater rights to an idea: the company who trained the employee, or the
employee themselves? The country in which the plant grew, or the company which
discovered and developed the plant's medicinal potential? As a result, attempts to assert
ownership and ethical disputes over ownership arise.

      Patent infringement, copyright infringement, trademark infringement.
      Misuse of the intellectual property systems to stifle competition: patent misuse,
       copyright misuse, patent troll, submarine patent.
      Even the notion of intellectual property itself has been criticised on ethical
       grounds: see intellectual property.
      Employee raiding: the practice of attracting key employees away from a
       competitor to take unfair advantage of the knowledge or skills they may possess.
      The practice of employing all the most talented people in a specific field,
       regardless of need, in order to prevent any competitors employing them.
      Bioprospecting (ethical) and biopiracy (unethical).
      Business intelligence and industrial espionage.

Cases: private versus public interests in the Human Genome Project

Ethics and Technology The computer and the World Wide Web are two of them most
significant inventions of the twentieth century. There are many ethical issues that arise
from this technology. It is easy to gain access to information. This leads to data mining,
workplace monitoring, and privacy invasion.5

Medical technology has improved as well. Pharmaceutical companies have the
technology to produce life saving drugs. These drugs are protected by patents and there
are no generic drugs available. This raises many ethical questions.

International business ethics and ethics of economic systems

The issues here are grouped together because they involve a much wider, global view on
business ethical matters.

International business ethics
While business ethics emerged as a field in the 1970s, international business ethics did
not emerge until the late 1990s, looking back on the international developments of that
decade.6 Many new practical issues arose out of the international context of business.



IMSA                                                                                         51
Fundamentals of Business

Theoretical issues such as cultural relativity of ethical values receive more emphasis in
this field. Other, older issues can be grouped here as well. Issues and subfields include:

      The search for universal values as a basis for international commercial behaviour.
      Comparison of business ethical traditions in different countries.
      Comparison of business ethical traditions from various religious perspectives.
      Ethical issues arising out of international business transactions; e.g.
       bioprospecting and biopiracy in the pharmaceutical industry; the fair trade
       movement; transfer pricing.
      Issues such as globalization and cultural imperialism.
      Varying global standards - e.g. the use of child labor.
      The way in which multinationals take advantage of international differences, such
       as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-
       wage countries.
      The permissibility of international commerce with pariah states.

Foreign countries often use dumping as a competitive threat, selling products at prices
lower than their normal value. This can lead to problems in domestic markets. It becomes
difficult for these markets to compete with the pricing set by foreign markets. In 2009,
the International Trade Commission has been researching anti-dumping laws. Dumping is
often seen as an ethical issue, as larger companies are taking advantage of other less
economically advanced companies.

Ethics of economic systems
This vaguely defined area, perhaps not part of but only related to business ethics,7 is
where business ethicists venture into the fields of political economy and political
philosophy, focusing on the rights and wrongs of various systems for the distribution of
economic benefits. The work of John Rawls and Robert Nozick are both notable
contributors.

Theoretical issues in business ethics
Conflicting interests

Business ethics can be examined from various perspectives, including the perspective of
the employee, the commercial enterprise, and society as a whole. Very often, situations
arise in which there is conflict between one or more of the parties, such that serving the
interest of one party is a detriment to the other(s). For example, a particular outcome
might be good for the employee, whereas, it would be bad for the company, society, or
vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the
harmonization and reconciliation of conflicting interests.

Ethical issues and approaches




IMSA                                                                                         52
Fundamentals of Business

Philosophers and others disagree about the purpose of a business ethic in society. For
example, some suggest that the principal purpose of a business is to maximize returns to
its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this
view, only those activities that increase profitability and shareholder value should be
encouraged, because any others function as a tax on profits. Some believe that the only
companies that are likely to survive in a competitive marketplace are those that place
profit maximization above everything else. However, some point out that self-interest
would still require a business to obey the law and adhere to basic moral rules, because the
consequences of failing to do so could be very costly in fines, loss of licensure, or
company reputation. The noted economist Milton Friedman was a leading proponent of
this view.

Some take the position that organizations are not capable of moral agency. Under this,
ethical behavior is required of individual human beings, but not of the business or
corporation.

Other theorists contend that a business has moral duties that extend well beyond serving
the interests of its owners or stockholders, and that these duties consist of more than
simply obeying the law. They believe a business has moral responsibilities to so-called
stakeholders, people who have an interest in the conduct of the business, which might
include employees, customers, vendors, the local community, or even society as a whole.
Stakeholders can also broken down into primary and secondary stakeholders. Primary
stakeholders are people that are affected directly such as stockholders, where secondary
stakeholders are people who are not affected directly such as the government. They
would say that stakeholders have certain rights with regard to how the business operates,
and some would suggest that this includes even rights of governance.

Some theorists have adapted social contract theory to business, whereby companies
become quasi-democratic associations, and employees and other stakeholders are given
voice over a company's operations. This approach has become especially popular
subsequent to the revival of contract theory in political philosophy, which is largely due
to John Rawls' A Theory of Justice, and the advent of the consensus-oriented approach to
solving business problems, an aspect of the "quality movement" that emerged in the
1980s. Professors Thomas Donaldson and Thomas Dunfee proposed a version of contract
theory for business, which they call Integrative Social Contracts Theory. They posit that
conflicting interests are best resolved by formulating a "fair agreement" between the
parties, using a combination of i) macro-principles that all rational people would agree
upon as universal principles, and, ii) micro-principles formulated by actual agreements
among the interested parties. Critics say the proponents of contract theories miss a central
point, namely, that a business is someone's property and not a mini-state or a means of
distributing social justice.

Ethical issues can arise when companies must comply with multiple and sometimes
conflicting legal or cultural standards, as in the case of multinational companies that
operate in countries with varying practices. The question arises, for example, ought a
company to obey the laws of its home country, or should it follow the less stringent laws
of the developing country in which it does business? To illustrate, United States law


IMSA                                                                                     53
Fundamentals of Business

forbids companies from paying bribes either domestically or overseas; however, in other
parts of the world, bribery is a customary, accepted way of doing business. Similar
problems can occur with regard to child labor, employee safety, work hours, wages,
discrimination, and environmental protection laws.

It is sometimes claimed that a Gresham's law of ethics applies in which bad ethical
practices drive out good ethical practices. It is claimed that in a competitive business
environment, those companies that survive are the ones that recognize that their only role
is to maximize profits.

Business ethics in the field
Corporate ethics policies

As part of more comprehensive compliance and ethics programs, many companies have
formulated internal policies pertaining to the ethical conduct of employees. These
policies can be simple exhortations in broad, highly-generalized language (typically
called a corporate ethics statement), or they can be more detailed policies, containing
specific behavioral requirements (typically called corporate ethics codes). They are
generally meant to identify the company's expectations of workers and to offer guidance
on handling some of the more common ethical problems that might arise in the course of
doing business. It is hoped that having such a policy will lead to greater ethical
awareness, consistency in application, and the avoidance of ethical disasters.

An increasing number of companies also requires employees to attend seminars regarding
business conduct, which often include discussion of the company's policies, specific case
studies, and legal requirements. Some companies even require their employees to sign
agreements stating that they will abide by the company's rules of conduct.

Many companies are assessing the environmental factors that can lead employees to
engage in unethical conduct. A competitive business environment may call for unethical
behavior. Lying has become expected in fields such as trading. An example of this are the
issues surrounding the unethical actions of the Saloman Brothers.

Not everyone supports corporate policies that govern ethical conduct. Some claim that
ethical problems are better dealt with by depending upon employees to use their own
judgment.

Others believe that corporate ethics policies are primarily rooted in utilitarian concerns,
and that they are mainly to limit the company's legal liability, or to curry public favor by
giving the appearance of being a good corporate citizen. Ideally, the company will avoid
a lawsuit because its employees will follow the rules. Should a lawsuit occur, the
company can claim that the problem would not have arisen if the employee had only
followed the code properly.




IMSA                                                                                      54
Fundamentals of Business

Sometimes there is disconnection between the company's code of ethics and the
company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by
management, at worst, this makes the policy duplicitous, and, at best, it is merely a
marketing tool.

To be successful, most ethicists would suggest that an ethics policy should be:

      Given the unequivocal support of top management, by both word and example.
      Explained in writing and orally, with periodic reinforcement.
      Doable....something employees can both understand and perform.
      Monitored by top management, with routine inspections for compliance and
       improvement.
      Backed up by clearly stated consequences in the case of disobedience.
      Remain neutral and nonsexist.

Ethics officers

Ethics officers (sometimes called "compliance" or "business conduct officers") have been
appointed formally by organizations since the mid-1980s. One of the catalysts for the
creation of this new role was a series of fraud, corruption and abuse scandals that
afflicted the U.S. defense industry at that time. This led to the creation of the Defense
Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business
practices. The DII set an early benchmark for ethics management in corporations. In
1991, the Ethics & Compliance Officer Association (ECOA) -- originally the Ethics
Officer Association (EOA)-- was founded at the Center for Business Ethics(at Bentley
College, Waltham, MA) as a professional association for those responsible for managing
organizations' efforts to achieve ethical best practices. The membership grew rapidly (the
ECOA now has over 1,100 members) and was soon established as an independent
organization.

Another critical factor in the decisions of companies to appoint ethics/compliance
officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991,
which set standards that organizations (large or small, commercial and non-commercial)
had to follow to obtain a reduction in sentence if they should be convicted of a federal
offense. Although intended to assist judges with sentencing, the influence in helping to
establish best practices has been far-reaching.

In the wake of numerous corporate scandals between 2001-04 (affecting large
corporations like Enron, WorldCom and Tyco), even small and medium-sized companies
have begun to appoint ethics officers. They often report to the Chief Executive Officer
and are responsible for assessing the ethical implications of the company's activities,
making recommendations regarding the company's ethical policies, and disseminating
information to employees. They are particularly interested in uncovering or preventing
unethical and illegal actions. This trend is partly due to the Sarbanes-Oxley Act in the
United States, which was enacted in reaction to the above scandals. A related trend is the
introduction of risk assessment officers that monitor how shareholders' investments might
be affected by the company's decisions.


IMSA                                                                                    55
Fundamentals of Business

The effectiveness of ethics officers in the marketplace is not clear. If the appointment is
made primarily as a reaction to legislative requirements, one might expect the efficacy to
be minimal, at least, over the short term. In part, this is because ethical business practices
result from a corporate culture that consistently places value on ethical behavior, a culture
and climate that usually emanates from the top of the organization. The mere
establishment of a position to oversee ethics will most likely be insufficient to inculcate
ethical behaviour: a more systemic programme with consistent support from general
management will be necessary.

The foundation for ethical behavior goes well beyond corporate culture and the policies
of any given company, for it also depends greatly upon an individual's early moral
training, the other institutions that affect an individual, the competitive business
environment the company is in and, indeed, society as a whole.

Religious views on business ethics
Main article: Religious views on business ethics

The historical and global importance of religious views on business ethics is sometimes
underestimated in standard introductions to business ethics. Particularly in Asia and the
Middle East, religious and cultural perspectives have a strong influence on the conduct of
business and the creation of business values.

Examples include:

      Islamic banking, associated with the avoidance of charging interest on loans.
      Traditional Confucian disapproval of the profit-seeking motive.8
      Quaker testimony on fair dealing.

Related disciplines
Business ethics should be distinguished from the philosophy of business, the branch of
philosophy that deals with the philosophical, political, and ethical underpinnings of
business and economics. Business ethics operates on the premise, for example, that the
ethical operation of a private business is possible -- those who dispute that premise, such
as libertarian socialists, (who contend that "business ethics" is an oxymoron) do so by
definition outside of the domain of business ethics proper.

The philosophy of business also deals with questions such as what, if any, are the social
responsibilities of a business; business management theory; theories of individualism vs.
collectivism; free will among participants in the marketplace; the role of self interest;
invisible hand theories; the requirements of social justice; and natural rights, especially
property rights, in relation to the business enterprise.

Business ethics is also related to political economy, which is economic analysis from
political and historical perspectives. Political economy deals with the distributive


IMSA                                                                                       56
Fundamentals of Business

consequences of economic actions. It asks who gains and who loses from economic
activity, and is the resultant distribution fair or just, which are central ethical issues.


Sole proprietorship
A sole proprietorship, or simply proprietorship (British English: sole trader) is a type
of business entity which legally has no separate existence from its owner. Hence, the
limitations of liability enjoyed by a corporation and limited liability partnerships do not
apply to sole proprietors. All debts of the business are debts of the owner. The person
who sets up the company has sole responsibility for the company's debts. It is a "sole"
proprietorship in the sense that the owner has no partners. A sole proprietorship
essentially refers to a natural person (individual) doing business in his or her own name
and in which there is only one owner.

A sole proprietor may do business with a trade name other than his or her legal name. In
some jurisdictions, for example the United States, the sole proprietor is required to
register the trade name or "Doing Business As" with a government agency. This also
allows the proprietor to open a business account with banking institutions.

 Advantages
A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the
person who organized the business pays personal income taxes on the profits made,
making accounting much simpler. A sole proprietorship also does not have to be
concerned with double taxation, as a corporate entity would have to.

 Disadvantages
A business organized as a sole trader will likely have a hard time raising capital since
shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to
a business organized as a corporation or limited liability company. It can also sometimes
be more difficult to raise bank finance, as sole proprietorships cannot grant a floating
charge which in many jurisdictions is required for bank financing. Hiring employees may
also be difficult. This form of business will have unlimited liability, so that if the business
is sued, the proprietor is personally liable. The life span of the business is also uncertain.
As soon as the owner decides not to have the business anymore, or the owner dies, the
business ceases to exist. The business owner must also be well rounded, as he or she will
take charge of all aspects of business.

In countries without universal health care, such as the United States, a sole proprietor is
also responsible for his or her own health insurance, and may find difficulty finding any
if one of the family members to be covered has a previous health issue.

Another disadvantage of a sole proprietorship is that as a business becomes successful,
the risks accompanying the business tend to grow. To minimize those risks, a sole


IMSA                                                                                          57
Fundamentals of Business

proprietor has the option of forming a corporation. In the United States, a sole proprietor
could also form a limited liability company, or LLC, which would give the protection of
limited liability but would still be treated as a sole proprietorship for income tax
purposes.


Partnership
A partnership is a type of business entity in which partners (owners) share with each
other the profits or losses of the business undertaking in which all have invested.
Partnerships are often favored over corporations for taxation purposes, as the partnership
structure does not generally incur a tax on profits before it is distributed to the partners
(i.e. there is no dividend tax levied). However, depending on the partnership structure and
the jurisdiction in which it operates, owners of a partnership may be exposed to greater
personal liability than they would as shareholders of a corporation.

 Definition in Civil Law
In civil law systems, a partnership is a nominate contract between individuals who, in a
spirit of cooperation, agree to carry on an enterprise; contribute to it by combining
property, knowledge or activities; and share its profit. Partners may have a partnership
agreement, or declaration of partnership and in some jurisdictions such agreements may
be registered and available for public inspection. In many countries, a partnership is also
considered to be a legal entity, although different legal systems reach different
conclusions on this point.

Germany

In civil law systems, a partnership is a nominate contract between individuals who, in a
spirit of cooperation, agree to carry on an enterprise; contribute to it by combining
property, knowledge or activities; and share its profit. Partners may have a partnership
agreement, or declaration of partnership and in some jurisdictions such agreements may
be registered and available for public inspection. In many countries, a partnership is also
considered to be a legal entity, although different legal systems reach different
conclusions on this point.

Main article: Kommanditgesellschaft

Partnerships may be formed in the legal forms of General Partnership (Offene
Handelsgesellschaft, OHG) or Limited Partnership (Kommanditgesellschaft, KG). A
partnership can be formed by only one person. In the OHG, all partners are fully liable
for the partnership's debts, whereas in the KG there are general partners with unlimited
liability and limited partners whose liability is restricted to their fixed contributions to the
partnership. Although a partnership itself is not a legal entity, it may acquire rights and
incur liabilities, acquire title to real estate and sue or be sued




IMSA                                                                                         58
Fundamentals of Business

China

Main article: Partnership (China)

In mainland China, a partnership enterprise encompasses general partnerships and limited
liability partnerships.1 A general partnership comprises general partners who bear joint
and several liabilities for the debts of the partnership enterprise.2 A limited liability
partnership enterprise includes general partners and limited partners where the limited
partners are liable only to the extent of their capital contributions.3

Japan

The Japanese civil code provides for partnerships by contract, which are commonly
                          意 合
known as nin'i kumiai (任 組 ?) or "voluntary partnerships." A more recent statute has
allowed for the creation of limited liability partnerships.

One form of partnership unique to Japan is the tokumei kumiai or "anonymous
partnership," in which partners have limited liability so long as they remain anonymous
in their capacity as partners and do not participate in the operation of the partnership.
Japan provides for partnership-like corporations called mochibun kaisha.

 Common Law
Under common law legal systems, the basic form of partnership is a general partnership,
in which all partners manage the business and are personally liable for its debts. Two
other forms which have developed in most countries are the limited partnership (LP), in
which certain limited partners relinquish their ability to manage the business in exchange
for limited liability for the partnership's debts, and the limited liability partnership (LLP),
in which all partners have some degree of limited liability.

There are two types of partners. General partners have an obligation of strict liability to
third parties injured by the Partnership. General partners may have joint liability or joint
and several liability depending upon circumstances. The liability of limited partners is
limited to their investment in the partnership.

A silent partner is one who still shares in the profits and losses of the business, but who is
uninvolved in its management, and/or whose association with the business is not publicly
known.

Hong Kong

       Main article: Partnership (Hong Kong)

A partnership in Hong Kong is a business entity formed by the Hong Kong Partnerships
Ordinance, which defines a partnership as "the relation between persons carrying on a
business in common with a view of profit" and is not a joint stock company or an


IMSA                                                                                        59
Fundamentals of Business

incorporated company.4 If the business entity registers with the Registrar of Companies it
takes the form of a limited partnership defined in the Limited Partnerships Ordinance.5
However, if this business entity fails to register with the Registrar of Companies, then it
becomes a general partnership as a default.5

Australia

       Main article: Partnership (Australia)

Summarising s. 5 of the Partnership Act 1958 (Vic) (hereinafter the "Act"), for a
partnership in Australia to exist, four main criteria must be satisfied. They are:

   Valid Agreement between the parties;

   To carry on a business - this is defined in s. 3 as "any trade, occupation or
      profession";

   In Common - meaning there must be some mutuality of rights, interests and
       obligations;

   View to Profit - thus charitable organizations cannot be partnerships (charities are
      typically incorporated associations under Associations Incorporations Act 1981
      (Vic))

United Kingdom limited partnership

       Main article: Partnership (UK)

A limited partnership in the United Kingdom consists of:

   One or more persons called general partners, who are liable for all debts and
      obligations of the firm; and

   One or more persons called limited partners, who contribute a sum/sums of money as
      capital, or property valued at a stated amount. Limited partners are not liable for
      the debts and obligations of the firm beyond the amount contributed.

Limited partners may not:

      Draw out or receive back any part of their contributions to the partnership during
       its lifetime; or
      Take part in the management of the business or have power to bind the firm.

If they do, they become liable for all the debts and obligations of the firm up to the
amount drawn out or received back or incurred while taking part in the management, as
the case may be.



IMSA                                                                                      60
Fundamentals of Business

India

According to section 4 of the Indian Partnership Act of 1932, "Partnership is defined as
the relation between two or more persons who have agreed to share the profits and losses
according to their ratio of business run by all or any one of them acting for all". This
definition superseded the previous definition given in section 239 of Indian Contract Act
1872 as - ―Partnership is the relation which subsists between persons who have agreed to
combine their property, labour, skill in some business, and to share the profits thereof
between them‖. The 1932 definition added the concept of mutual agency.

USA

Main article: Partnership (USA)
Main article: Partnership taxation (USA)

The federal government of the United States does not have specific statutory law
governing the establishment of partnerships. Instead, the several composite states of the
country each contain their own statutory and common law governance of partnerships.
These states largely follow general common law principles of partnerships whether a
general partnership, a limited partnership or a limited liability partnership. In the absence
of applicable federal law, the National Conference of Commissioners on Uniform State
Laws has issued non-binding models laws (called uniform act) in which to encourage the
adoption of uniformity of partnership law into the states by their respective legislatures.
This includes the Uniform Partnership Act and the Uniform Limited Partnership Act.
Although the federal government does not have specific statutory law for establishing
partnerships, it has an extensive and hyperdetailed statutory scheme for the taxation of
partnerships in the Internal Revenue Code. The IRC is Title 26 of the United States Code
wherein Subchapter K of Chapter 1 creates tax consequences of such great scale and
scope that it effectively serves as a federal statutory scheme for governing partnerships.

Islamic Law
Main article: Qirad

The Qirad and Mudaraba institutions in Islamic law and economic jurisprudence were
the precursors to the modern limited partnership. These were developed in the medieval
Islamic world, when Islamic economics flourished and when early trading companies, big
businesses, contracts, bills of exchange and long-distance international trade were
established.6

In medieval Italy, the Qirad and Mudaraba concepts were adapted in the 10th century as
the commenda,6 a limited partnership instiution which was generally used for financing
maritime trade.




IMSA                                                                                       61
Fundamentals of Business


Corporation
A corporation is a legal entity separate from the persons that form it. In British tradition
it is the term designating a body corporate, where it can be either a corporation sole (an
office held by an individual natural person, which is a legal entity separate from that
person) or a corporation aggregate (involving more persons). In American and,
increasingly, international usage, the term denotes a body corporate formed to conduct
business, and this meaning of corporation is discussed in the remaining part of this entry
(the limited company in British usage).

Corporations exist as a product of corporate law, and their rules balance the interests of
the shareholders that invest their capital and the employees who contribute their labor.
People work together in corporations to produce value and generate income. In modern
times, corporations have become an increasingly dominant part of economic life. People
rely on corporations for employment, for their goods and services, for the value of the
pensions, for economic growth and social development.

The defining feature of a corporation is its legal independence from the people who
create it. If a corporation fails, shareholders normally only stand to lose their investment
(and possibly, in the unusual case where the shares are not fully paid up, any amount
outstanding on them - and not even that in the case of a No liability company), and
employees will lose their jobs, but neither will be further liable for debts that remain
owing to the corporation's crors unless they have separately varied this, e.g. with personal
guarantees. This rule is called limited liability, and it is why the names of corporations in
the UK end with "Ltd." (or some variant like "Inc." and "plc").

Despite not being natural persons, corporations are recognized by the law to have rights
and responsibilities like actual people. Corporations can exercise human rights against
real individuals and the state,1 and they may be responsible for human rights violations.2
Just as they are "born" into existence through its members obtaining a certificate of
incorporation, they can "die" when they lose money into insolvency. Corporations can
even be convicted of criminal offences, such as fraud and manslaughter.3 Five common
characteristics of the modern corporation, according to Harvard University Professors
Hansmann and Kraakman are...

      delegated management, in other words, control of the company placed in the
       hands of a board of directors
      limited liability of the shareholders (so that when the company is insolvent, they
       only owe the money that they subscribed for in shares)
      investor ownership, which Hansmann and Kraakman take to mean, ownership by
       shareholders.4
      separate legal personality of the corporation (the right to sue and be sued in its
       own name)
      transferrable shares (usually on a listed exchange, such as the London Stock
       Exchange, New York Stock Exchange or Euronext in Paris)


IMSA                                                                                      62
Fundamentals of Business

Ownership of a corporation is complicated by increasing social and economic
interdependence, as different stakeholders compete to have a say in corporate affairs. In
most developed countries excluding the English speaking world, company boards have
representatives of both shareholders and employees to "codetermine" company strategy.
Calls for increasing corporate social responsibility are made by consumer, environmental
and human rights activists, and this has led to larger corporations drawing up codes of
conduct. In Australia, Canada, the United Kingdom and the United States, corporate law
has not yet stepped into that field, and its building blocks remain the study of corporate
governance and corporate finance.

  Corporations' history
1/8 share of the Stora Kopparberg mine, dated June 16, 1288.

The word "corporation" derives from corpus, the Latin word for body, or a "body of
people". Entities which carried on business and were the subjects of legal rights were
found in ancient Rome, and the Maurya Empire in ancient India.5 In medieval Europe,
churches became incorporated, as did local governments, such as the Pope and the City of
London Corporation. The point was that the incorporation would survive longer than the
lives of any particular member, existing in perpetuity. The alleged oldest commercial
corporation in the world, the Stora Kopparberg mining community in Falun, Sweden,
obtained a charter from King Magnus Eriksson in 1347. Many European nations
chartered corporations to lead colonial ventures, such as the Dutch East India Company
or the Hudson's Bay Company, and these corporations came to play a large part in the
history of corporate colonialism.

During the period of colonial expansion in the seventeenth century, the true progenitors
of the modern Corporation emerged as the "chartered company". Acting under a charter
sanctioned by the Dutch monarch, the Vereenigde Oost-Indische Compagnie (VOC), or
the Dutch East India Company, defeated Portuguese forces and established itself in the
Moluccan Islands in order to profit from the European demand for spices. Investors in the
VOC were issued paper certificates as proof of share ownership, and were able to trade
their shares on the original Amsterdam stock exchange. Shareholders are also explicitly
granted limited liability in the company's royal charter.6 In the late seventeenth century,
Stewart Kyd, the author of the first treatise on corporate law in English, defined a
corporation as,

"a collection of many individuals united into one body, under a special denomination, having
perpetual succession under an artificial form, and vested, by policy of the law, with the capacity
of acting, in several respects, as an individual, particularly of taking and granting property, of
contracting obligations, and of suing and being sued, of enjoying privileges and immunities in
common, and of exercising a variety of political rights, more or less extensive, according to the
design of its institution, or the powers conferred upon it, either at the time of its creation, or at any
subsequent period of its existence."7

Mercantilism



IMSA                                                                                                 63
Fundamentals of Business

A bond issued by the Dutch East India Company, dating from 1623, for the amount of
2,400 florins

Labelled by both contemporaries and historians as "the grandest society of merchants in
the universe", the British East India Company would come to symbolize the dazzlingly
rich potential of the corporation, as well as new methods of business that could be both
brutal and exploitive.8 On 31 December 1600, the English monarchy granted the
company a fifteen-year monopoly on trade to and from the East Indies and Africa. By
1611, shareholders in the East India Company were earning an almost 150% return on
their investment. Subsequent stock offerings demonstrated just how lucrative the
Company had become. Its first stock offering in 1613-1616 raised ₤418,000, and its first
offering in 1617-1622 raised ₤1.6 million.9

In the United States, government chartering began to fall out of vogue in the mid-1800s.
Corporate law at the time was focused on protection of the public interest, and not on the
interests of corporate shareholders. Corporate charters were closely regulated by the
states. Forming a corporation usually required an act of legislature. Investors generally
had to be given an equal say in corporate governance, and corporations were required to
comply with the purposes expressed in their charters. Many private firms in the 19th
century avoided the corporate model for these reasons (Andrew Carnegie formed his steel
operation as a limited partnership, and John D. Rockefeller set up Standard Oil as a trust).
Eventually, state governments began to realize the greater corporate registration revenues
available by providing more permissive corporate laws. New Jersey was the first state to
adopt an "enabling" corporate law, with the goal of attracting more business to the state.10
Delaware followed, and soon became known as the most corporation-friendly state in the
country after New Jersey raised taxes on the corporations, driving them out. New Jersey
reduced these taxes after this mistake was realized, but by then it was too late; even
today, most major public corporations are set up under Delaware law.

By the beginning of the nineteenth century, government policy on both sides of the
Atlantic began to change, reflecting the growing popularity of the proposition that
corporations were riding the economic wave of the future. In 1819, the U.S. Supreme
Court granted corporations a plethora of rights they had not previously recognized or
enjoyed.11 Corporate charters were deemed "inviolable," and not subject to arbitrary
amendment or abolition by state governments.12 The Corporation as a whole was labeled
an "artificial person," possessing both individuality and immortality.13

At around the same time as the above events were occurring in the United States, British
legislation was similarly freeing the corporation from the shackles of historical
restrictions. In 1844 British Parliament passed the Joint Stock Companies Act, which
allowed companies to incorporate without a royal charter or an additional act of
Parliament.14 Ten years later, England enshrined into law the preeminent hallmark of
modern corporate law - the concept of limited liability. Acting in response to increasing
pressure from newly emerging capital interests, Parliament passed the Limited Liability
Act of 1855, which established the principle that any corporation could enjoy limited
legal liability on both contract and tort claims simply by registering as a "limited"
company with the appropriate government agency.15


IMSA                                                                                     64
Fundamentals of Business

This revolutionary switch from unlimited to limited liability prompted a writer for the
English periodical Economist to write in 1855 that "never, perhaps, was a change so
vehemently and generally demanded, of which the importance was so much overrated."16
The glaring inaccuracy of the second part of this judgment was recognized by the same
magazine more than seventy-five years later, when it claimed that, "the economic
historian of the future . . . may be inclined to assign to the nameless inventor of the
principle of limited liability, as applied to trading corporations, a place of honour with
Watt and Stephenson, and other pioneers of the Industrial Revolution."17

Modern corporations

By the end of the nineteenth century the forces of limited liability, state and national
deregulation, and vastly increasing capital markets had come together to give birth to the
corporation in its modern-day form.18 The well-known Santa Clara County v. Southern
Pacific Railroad decision began to influence policymaking. The decline of restrictions on
mergers and acquisitions encouraged a wave of corporate consolidation: from 1898 to
1904, 1,800 U.S. corporations were consolidated into 157.19 The modern corporate era
had begun.

The 20th century saw a proliferation of enabling law across the world, which helped to
drive economic booms in many countries before and after World War I. Starting in the
1980s, many countries with large state-owned corporations moved toward privatization,
the selling of publicly owned services and enterprises to corporations. Deregulation --
reducing the regulation of corporate activity -- often accompanied privatization as part of
an ideologically laissez-faire policy. Another major postwar shift was toward the
development of conglomerates, in which large corporations purchased smaller
corporations to expand their industrial base. Japanese firms developed a horizontal
conglomeration model, the keiretsu, which was later duplicated in other countries as well.

 Corporate law
The existence of a corporation requires a special legal framework and body of law that
specifically grants the corporation legal personality, and typically views a corporation as
a fictional person, a legal person, or a moral person (as opposed to a natural person). As
such, corporate statutes typically give corporations the ability to own property, sign
binding contracts, pay taxes in a capacity that is separate from that of its shareholders
(who are sometimes referred to as "members". According to Lord Chancellor Haldane,

"...a corporation is an abstraction. It has no mind of its own any more than it has a body of its
own; its active and directing will must consequently be sought in the person of somebody who is
really the directing mind and will of the corporation, the very ego and centre of the personality of
the corporation."20

The legal personality has two economic implications. First it grants crors priority over the
corporate assets upon liquidation. Second, corporate assets cannot be withdrawn by its
shareholders, nor can the assets of the firm be taken by personal crors of its shareholders.



IMSA                                                                                             65
Fundamentals of Business

The second feature requires special legislation and a special legal framework, as it cannot
be reproduced via standard contract law.21

The regulations most favorable to incorporation include:

Limited liability
       Unlike in a partnership or sole proprietorship, shareholders of a modern business
       corporation have "limited" liability for the corporation's debts and obligations.22
       As a result, their potential losses cannot exceed the amount which they
       contributed to the corporation as dues or paid for shares. Limited liability
       regulations enable corporations to socialize their costs for the primary benefit of
       shareholders. The economic rationale for this lies in the fact that it allows
       anonymous trading in the shares of the corporation by virtue of eliminating the
       corporation's crors as a stakeholder in such a transaction. Without limited liability,
       a cror would probably not allow any share to be sold to a buyer of at least
       equivalent crworthiness as the seller. Limited liability further allows corporations
       to raise tremendously more funds for enterprises by combining funds from the
       owners of stock. Limited liability reduces the amount that a shareholder can lose
       in a company. This in turn greatly reduces the risk for potential shareholders and
       increases both the number of willing shareholders and the amount they are likely
       to invest.
Perpetual lifetime
       Another favorable regulation, the assets and structure of the corporation exist
       beyond the lifetime of any of its shareholders, bondholders, or employees. This
       allows for stability and accumulation of capital, which thus becomes available for
       investment in projects of a larger size and over a longer term than if the corporate
       assets remained subject to dissolution and distribution. This feature also had great
       importance in the medieval period, when land donated to the Church (a
       corporation) would not generate the feudal fees that a lord could claim upon a
       landholder's death. In this regard, see Statute of Mortmain. It is important to note
       that the "perpetual lifetime" feature is an indication of the unbounded potential
       duration of the corporation's existence, and its accumulation of wealth and thus
       power. (In theory, a corporation can have its charter revoked at any time, putting
       an end to its existence as a legal entity. However, in practice, dissolution only
       occurs for corporations that request it or fail to meet annual filing requirements.)

Ownership and control

Persons and other legal entities composed of persons (such as trusts and other
corporations) can have the right to vote or share in the profit of corporations. In the case
of for-profit corporations, these voters hold shares of stock and are thus called
shareholders or stockholders. When no stockholders exist, a corporation may exist as a
non-stock corporation, and instead of having stockholders, the corporation has members
who have the right to vote on its operations. Voting members are not the only members
of a "Corporation." The members of a non-stock corporation are identified in the Articles
of Incorporation and the titles of the member classes may include "Trustee," "Active,"
"Associate," and/or "Honorary." However, each of these listed in the Articles of


IMSA                                                                                      66
Fundamentals of Business

Incorporation are members of the "Corporation." The Articles of Incorporation may
define the "Corporation" by another name, such as "The ABC Club, Inc." and, in which
case, the "Corporation" and "The ABC Club, Inc." or just "The Club" are considered
synomounous and interchangeable as they may appear elsewhere in the Articles of
Incorporation or the By-Laws. If the non-stock corporation is not operated for profit, it is
called a not-for-profit corporation. In either category, the corporation comprises a
collective of individuals with a distinct legal status and with special privileges not
provided to ordinary unincorporated businesses, to voluntary associations, or to groups of
individuals.

For the purposes of the next few paragraphs, the term "members" will be used to refer to
stockholders of a stock corporation and members of a non-stock corporation.

There are two broad classes of corporate governance forms in the world. In most of the
world, control of the corporation is determined by a board of directors which is elected by
the shareholders. In some jurisdictions, such as Germany, the control of the corporation is
divided into two tiers with a supervisory board which elects a managing board. Germany
is also unique in having a system known as co-determination in which half of the
supervisory board consists of representatives of the employees. The CEO, president,
treasurer, and other titled officers are usually chosen by the board to manage the affairs of
the corporation.

In addition to the influence of shareholders, corporations can be controlled (in part) by
crors such as banks. In return for lending money to the corporation, crors can demand a
controlling interest analogous to that of a member, including one or more seats on the
board of directors. In some jurisdictions, such as Germany and Japan, it is standard for
banks to own shares in corporations whereas in other jurisdictions such as the United
States and the United Kingdom banks are prohibited from owning shares in external
corporation.

Members of a corporation (except for non-profit corporations) are said to have a "residual
interest." Should the corporation end its existence, the members are the last to receive its
assets, following crors and others with interests in the corporation. This can make
investment in a corporation risky; however, a diverse investment portfolio minimizes this
risk. In addition, shareholders receive the benefit of limited liability regulations, making
shareholders liable for only the amount they contributed. This only applies in the case of
for-profit corporations; non-profits are not allowed to have residual benefits available to
the members.

Formation

Historically, corporations were created by special charter of governments. Today,
corporations are usually registered with the state, province, or national government and
become regulated by the laws enacted by that government. Registration is the main
prerequisite to the corporation's assumption of limited liability. As part of this
registration, it must in many cases be required to designate the principal address of the
corporation as well as a registered agent (a person or company that is designated to


IMSA                                                                                        67
Fundamentals of Business

receive legal service of process). As part of the registration, it may also be required to
designate an agent or other legal representative of the corporation depending on the filing
jurisdiction.

Generally, a corporation files articles of incorporation with the government, laying out
the general nature of the corporation, the amount of stock it is authorized to issue, and the
names and addresses of directors. Once the articles are approved, the corporation's
directors meet to create bylaws that govern the internal functions of the corporation, such
as meeting procedures and officer positions.

The law of the jurisdiction in which a corporation operates will regulate most of its
internal activities, as well as its finances. If a corporation operates outside its home state,
it is often required to register with other governments as a foreign corporation, and is
almost always subject to laws of its host state pertaining to employment, crimes,
contracts, civil actions, and the like.

Naming

Corporations generally have a distinct name. Historically, some corporations were named
after their membership: for instance, "The President and Fellows of Harvard College."
Nowadays, corporations in most jurisdictions have a distinct name that does not need to
make reference to their membership. In Canada, this possibility is taken to its logical
extreme: many smaller Canadian corporations have no names at all, merely numbers
based on their Provincial Sales Tax registration number (e.g., "12345678 Ontario
Limited").

In most countries, corporate names include the term "Corporation", or an abbreviation
that denotes the corporate status of the entity. These terms vary by jurisdiction and
language. In some jurisdictions they are mandatory, and in others they are not.23 Their
use puts all persons on constructive notice that they have to deal with an entity whose
liability remains limited, in the sense that it does not reach back to the persons who
constitute the entity; one can only collect from whatever assets the entity still controls at
the time one obtains a judgment against it.

Certain jurisdictions do not allow the use of the word "company" alone to denote
corporate status, since the word "company" may refer to a partnership or to a sole
proprietorship, or even, archaically, to a group of not necessarily related people (for
example, those staying in a tavern).

Unresolved issues

The nature of the corporation continues to evolve in response to new situations as
existing corporations promote new ideas and structures, the courts respond, and
governments issue new regulations. A question of long standing is that of diffused
responsibility. For example, if a corporation is found liable for a death, how should
culpability and punishment for it be allocated among shareholders, directors,



IMSA                                                                                         68
Fundamentals of Business

management and staff, and the corporation itself? See corporate liability, and specifically,
corporate manslaughter.

The law differs among jurisdictions, and is in a state of flux. Some argue that
shareholders should be ultimately responsible in such circumstances, forcing them to
consider issues other than profit when investing, but a corporation may have millions of
small shareholders who know nothing about its business activities. Moreover, traders —
especially hedge funds — may turn over shares in corporations many times a day.24The
issue of corporate repeat offenders (see H. Glasbeak, "Wealth by Stealth: Corporate
Crime, Corporate Law, and the Perversion of Democracy" (Between the Lines Press:
Toronto 2002) raises the question of the so-called "death penalty for corporations."25

 Types of corporations
       For a list of types of corporation and other business types by country, see Types
       of business entity.

Most corporations are registered with the local jurisdiction as either a stock corporation
or a non-stock corporation. Stock corporations sell stock to generate capital. A stock
corporation is generally a for-profit corporation. A non-stock corporation does not have
stockholders, but may have members who have voting rights in the corporation.

Some jurisdictions (Washington, D.C., for example) separate corporations into for-profit
and non-profit, as opposed to dividing into stock and non-stock.

For-profit and non-profit

Main article: non-profit organization

In modern economic systems, conventions of corporate governance commonly appear in
a wide variety of business and non-profit activities. Though the laws governing these
creatures of statute often differ, the courts often interpret provisions of the law that apply
to profit-making enterprises in the same manner (or in a similar manner) when applying
principles to non-profit organizations — as the underlying structures of these two types
of entity often resemble each other.

Closely held and public

The institution most often referenced by the word "corporation" is a public or publicly
traded corporation, the shares of which are traded on a public stock exchange (e.g., the
New York Stock Exchange or Nasdaq in the United States) where shares of stock of
corporations are bought and sold by and to the general public. Most of the largest
businesses in the world are publicly traded corporations. However, the majority of
corporations are said to be closely held, privately held or close corporations, meaning
that no ready market exists for the trading of shares. Many such corporations are owned




IMSA                                                                                        69
Fundamentals of Business

and managed by a small group of businesspeople or companies, although the size of such
a corporation can be as vast as the largest public corporations.

Closely held corporations do have some advantages over publicly traded corporations. A
small, closely held company can often make company-changing decisions much more
rapidly than a publicly traded company. A publicly traded company is also at the mercy
of the market, having capital flow in and out based not only on what the company is
doing but the market and even what the competitors are doing. Publicly traded companies
also have advantages over their closely held counterparts. Publicly traded companies
often have more working capital and can delegate debt throughout all shareholders. This
means that people invested in a publicly traded company will each take a much smaller
hit to their own capital as opposed to those involved with a closely held corporation.
Publicly traded companies though suffer from this exact advantage. A closely held
corporation can often voluntarily take a hit to profit with little to no repercussions (as
long as it is not a sustained loss). A publicly traded company though often comes under
extreme scrutiny if profit and growth are not evident to stock holders, thus stock holders
may sell, further damaging the company. Often this blow is enough to make a small
public company fail.

Often communities benefit from a closely held company more so than from a public
company. A closely held company is far more likely to stay in a single place that has
treated them well, even if going through hard times. The shareholders can incur some of
the damage the company may receive from a bad year or slow period in the company
profits. Workers benefit in that closely held companies often have a better relationship
with workers. In larger, publicly traded companies, often when a year has gone badly the
first area to feel the effects are the work force with lay offs or worker hours, wages or
benefits being cut. Again, in a closely held business the shareholders can incur this profit
damage rather than passing it to the workers. Closely held businesses are also often
known to be more socially responsible than publicly traded companies.

The affairs of publicly traded and closely held corporations are similar in many respects.
The main difference in most countries is that publicly traded corporations have the
burden of complying with additional securities laws, which (especially in the U.S.) may
require additional periodic disclosure (with more stringent requirements), stricter
corporate governance standards, and additional procedural obligations in connection with
major corporate transactions (e.g. mergers) or events (e.g. elections of directors).

A closely held corporation may be a subsidiary of another corporation (its parent
company), which may itself be either a closely held or a public corporation.

Mutual benefit corporations

A mutual benefit nonprofit corporation is a corporation formed in the United States solely
for the benefit of its members. An example of a mutual benefit nonprofit corporation is a
golf club. Individuals pay to join the club, memberships may be bought and sold, and any
property owned by the club is distributed to its members if the club dissolves. The club
can decide, in its corporate bylaws, how many members to have, and who can be a


IMSA                                                                                      70
Fundamentals of Business

member. Generally, while it is a nonprofit corporation, a mutual benefit corporation is not
a charity. Because it is not a charity, a mutual benefit nonprofit corporation cannot obtain
501(c)(3) status. If there is a dispute as to how a mutual benefit nonprofit corporation is
being operated, it is up to the members to resolve the dispute since the corporation exists
to solely serve the needs of its membership and not the general public.26

Corporations globally
Main article: Multinational corporation

Following on the success of the corporate model at a national level, many corporations
have become transnational or multinational corporations: growing beyond national
boundaries to attain sometimes remarkable positions of power and influence in the
process of globalizing.

The typical "transnational" or "multinational" may fit into a web of overlapping
shareholders and directorships, with multiple branches and lines in different regions,
many such sub-groupings comprising corporations in their own right. Growth by
expansion may favor national or regional branches; growth by acquisition or merger can
result in a plethora of groupings scattered around and/or spanning the globe, with
structures and names which do not always make clear the structures of shareholder
ownership and interaction.

In the spread of corporations across multiple continents, the importance of corporate
culture has grown as a unifying factor and a counterweight to local national sensibilities
and cultural awareness.

Australia

Main article: Corporations Act 2001

In Australia corporations are registered and regulated by the Commonwealth Government
through the Australian Securities and Investments Commission. Corporations law has
been largely codified in the Corporations Act 2001.

Brazil

In Brazil there are many different types of corporations ("sociedades"), but the two most
common ones commercially speaking are: (i) "sociedade limitada", identified by "Ltda."
after the company's name, equivalent to the British limited company, and (ii) "sociedade
anônima" or "companhia", identified by "SA" or "Companhia" in the company's name,
equivalent to the British public limited company. The "Ltda." is mainly governed by the
new Civil Code, enacted in 2002, and the "SA" by the Law 6.404 dated 15 December
1976.

Canada


IMSA                                                                                         71
Fundamentals of Business

Main article: Canadian corporation

In Canada both the federal government and the provinces have corporate statutes, and
thus a corporation may have a provincial or a federal charter. Many older corporations in
Canada stem from Acts of Parliament passed before the introduction of general
corporation law. The oldest corporation in Canada is the Hudson's Bay Company; though
its business has always been based in Canada, its Royal Charter was issued in England by
King Charles II in 1670, and became a Canadian charter by amendment in 1970 when it
moved its corporate headquarters from London to Canada. Federally recognized
corporations are regulated by the Canada Business Corporations Act.

German-speaking countries

Main article: Aktiengesellschaft

Germany, Austria, Switzerland and Liechtenstein recognize two forms of corporation: the
Aktiengesellschaft (AG), analogous to public corporations in the English-speaking world,
and the Gesellschaft mit beschränkter Haftung (GmbH), similar to (and an inspiration
for) the modern limited liability company.

Italy

The Italian Republic recognises three types of company with limited liability: "S.r.l", or
"Società a responsabilità limitata" (a private limited company), "S.p.A" or "Società per
Azioni" (a joint-stock company, similar to a Public Limited Company in the United
Kingdom), and "S.a.p.a" ("Società in Accomandita per Azioni"). The latter is a hybrid
form that involves two categories of shareholders, some with and some without limited
liability, and is rarely used in practice.

Japan

In Japan, both the state and local public entities under the Local Autonomy Law
(prefectures and municipalities) are considered to be corporations (法 hōjin?). Non-
                                                                       人
profit corporations may be established under the Civil Code.

                         社
The term "company" (会 kaisha?) is used to refer to business corporations. The
                                           式 社
predominant form is the kabushiki kaisha (株 会 ), used by public corporations as well
                                          分 社
as smaller enterprises. Mochibun kaisha (持 会 ), a form for smaller enterprises, are
becoming increasingly common.

United Kingdom

Main article: UK company law

In the United Kingdom, 'corporation' most commonly refers to a body corporate formed
by Royal Charter or by statute, of which few now remain. The BBC is the oldest and best



IMSA                                                                                         72
Fundamentals of Business

known corporation within the UK that is still in existence. Others, such as the British
Steel Corporation, were privatized in the 1980s.

In the private sector, corporations are referred to in law as companies, and are regulated
by the Companies Act 2006 (or the Northern Ireland equivalent). The most common type
of company is the private limited company ("Limited" or "Ltd."). Private limited
companies can either be limited by shares or by guarantee. Other corporate forms include
the public limited company ("PLC") and the unlimited company.

United States

Main article: Delaware corporation

Several types of corporations exist in the United States. Generically, any business entity
that is recognized as distinct from the people who own it (i.e., is not a sole proprietorship
or a partnership) is a corporation. This generic label includes entities that are known by
such legal labels as ‗association‘, ‗organization‘ and ‗limited liability company‘, as well
as corporations proper. Only a company that has been formally incorporated according to
the laws of a particular state is called ‗corporation‘. American corporations can be either
profit-making companies or non-profit entities. Tax-exempt non-profit corporations are
often called ―501(c)3 corporation‖, after the section of the Internal Revenue Code that
addresses their tax exemption.

Corporations are created by filing the requisite documents with a particular state
government. The process is called ―incorporation,‖ referring to the abstract concept of
clothing the entity with a "veil" of artificial personhood (embodying, or ―corporating‖ it,
‗corpus‘ being the Latin word for ‗body‘). Only certain corporations, including banks, are
chartered. Others simply file their articles of incorporation with the state government as
part of a registration process.

The federal government can only create corporate entities pursuant to relevant powers in
the U.S. Constitution. For example, Congress has constitutional power to regulate
banking, so it has power to charter federal banks.

Once incorporated, the corporation has artificial personhood everywhere it may operate,
until such time as the corporation may be dissolved. A corporation that operates in one
state while being incorporated in another is a ―foreign corporation.‖ This label also
applies to corporations incorporated outside of the United States. Foreign corporations
must usually register with the secretary of state‘s office in each state to lawfully conduct
business in that state.

A corporation is legally a citizen of the state (or other jurisdiction) in which it is
incorporated (except when circumstances direct the corporation be classified as a citizen
of the state in which it has its head office, or the state in which it does the majority of its
business). Corporate business law differs from state to state, and many prospective
corporations choose to incorporate in a state whose laws are most favorable to its
business interests. Many large corporations are incorporated in Delaware, for example,


IMSA                                                                                          73
Fundamentals of Business

without being physically located there because that state has very favorable corporate tax
and disclosure laws.

Companies set up for privacy or asset protection often incorporate in Nevada, which does
not require disclosure of share ownership. Many states, particularly smaller ones, have
modeled their corporate statutes after the Model Business Corporation Act, one of many
model sets of law prepared and published by the American Bar Association.

As juristic persons, corporations have certain rights that attach to natural purposes. The
vast majority of them attach to corporations under state law, especially the law of the
state in which the company is incorporated – since the corporations very existence is
predicated on the laws of that state. A few rights also attach by federal constitutional and
statutory law, but they are few and far between compared to the rights of natural persons.
For example, a corporation has the personal right to bring a lawsuit (as well as the
capacity to be sued) and, like a natural person, a corporation can be libeled.

But a corporation has no constitutional right to freely exercise its religion because
religious exercise is something that only "natural" persons can do. That is, only human
beings, not business entities, have the necessary faculties of belief and spirituality that
enable them to possess and exercise religious beliefs.

Harvard College (a component of Harvard University), formally the President and
Fellows of Harvard College (also known as the Harvard Corporation), is the oldest
corporation in the western hemisphere. Founded in 1636, the second of Harvard‘s two
governing boards was incorporated by the Great and General Court of Massachusetts in
1650. Significantly, Massachusetts itself was a corporate colony at that time – owned and
operated by the Massachusetts Bay Company (until it lost its charter in 1684) - so
Harvard College is a corporation created by a corporation.

Many nations have modeled their own corporate laws on American business law.
Corporate law in Saudi Arabia, for example, follows the model of New York State
corporate law. In addition to typical corporations in the United States, the federal
government, in 1971 passed the Alaska Native Claims Settlement Act (ANCSA), which
authorized the creation of 12 regional native corporations for Alaska Natives and over
200 village corporations that were entitled to a settlement of land and cash. In addition to
the 12 regional corporations, the legislation permitted a thirteenth regional corporation
without a land settlement for those Alaska Natives living out of the State of Alaska at the
time of passage of ANCSA.

Corporate taxation
Main article: Corporate tax

In many countries corporate profits are taxed at a corporate tax rate, and dividends paid to
shareholders are taxed at a separate rate. Such a system is sometimes referred to as
"double taxation", because any profits distributed to shareholders will eventually be taxed



IMSA                                                                                          74
Fundamentals of Business

twice. One solution to this (as in the case of the Australian and UK tax systems) is for the
recipient of the dividend to be entitled to a tax cr which addresses the fact that the profits
represented by the dividend have already been taxed. The company profit being passed
on is therefore effectively only taxed at the rate of tax paid by the eventual recipient of
the dividend. In other systems, dividends are taxed at a lower rate than other income (e.g.
in the US) or shareholders are taxed directly on the corporation's profits and dividends
are not taxed (e.g. S corporations in the US).

Criticisms of Corporations
Main article: Criticisms of Corporations

Granting a collectivist entity the rights and privileges of a person can be problematic in a
democratic society, as it threatens to undermine the fundamental principle of equality by
creating a unique class of persons with unprecedented access to financial resources,
limited legal accountability, and virtual immortality. Moreover, unlike real individuals,
who function with the guidance of complex moral guidelines, possess a sensitivity to
social norms and mores, and who presumably seek to co-exist peacefully with their
neighbors, corporations exist solely to consolidate wealth and accumulate power. In
allowing the judicial system to aid corporations in accumulating profit, the state has
essentially agreed to use its own resources (i.e. those of the people) to support
corporations' efforts to accumulate more wealth into the hands of fewer people. 2728

As Adam Smith pointed out in the Wealth of Nations, when ownership is separated from
management (i.e. the actual production process required to obtain the capital), the former
will inevitably begin to neglect the interests of the latter, creating dysfunction within the
company.29 Some maintain that recent events in corporate America may serve to
reinforce Smith's warnings about the dangers of legally-protected collectivist
hierarchies.30

Other business entities
Almost every recognized type of organization carries out some economic activities (e.g.
the family). Other organizations that may carry out activities that are generally
considered to be business exist under the laws of various countries. These include:

      Consumers' cooperative
      Limited company (Ltd.)
      Limited liability company (LLC)
      Limited liability limited partnership (LLLP)
      Limited liability partnership (LLP)
      Limited partnership (LP)
      Low-profit limited liability company (L3C)
      Not-for-profit corporation
      Partnership
      Sole proprietorship


IMSA                                                                                        75
Fundamentals of Business

      Trust company, Trust law


Types of business entity
There are many types of business entity defined in the legal systems of various
countries. These include corporations, partnerships, sole traders and other specialized
types of organization. Some of these types are listed below, by country.

For guidance, approximate equivalents in the company law of English-speaking countries
are given in most cases, e.g. ≈ PLC (UK), ≈ Ltd. (UK), ≈ limited partnership, etc. It
should be remembered, however, that the regulations governing particular types of entity,
even those described as roughly equivalent, may differ to a greater or lesser extent
between countries.

Depending on which type of business entity you choose will also influence the legal
structure.1

Albania
      Sh.A., Sh.a. (Shoqëri Aksionare): ≈ PLC (UK)
      Sh.p.K., Sh.p.k. (Shoqëri me Përgjegjësi të Kufizuar): ≈ Ltd. (UK)

Argentina
   S.A. (Sociedad Anónima): ≈ PLC (UK)

   S.R.L. (Sociedad de Responsabilidad Limitada): ≈ Ltd. (UK)

   Sociedad en Comandita: ≈ limited partnership

Australia
      Inc. (Incorporated): restricted to non-profit associations
      Ltd. (Limited): ≈ PLC (UK). The suffix Ltd. may also be used by a private
       company limited by guarantee, such as a charity or university (these may obtain
       dispensation from the Registrar of Companies to operate without the suffix).
      NL (No liability): a type of mining company with no right to call up the unpaid
       issue price of shares
      Pty. Ltd. (Proprietary Limited Company): ≈ Ltd. (UK)
      Pty. Ltd. (Proprietary Limited Company): ≈ Ltd. (UK)ATF Trust. In Australia
       companies can act as a trustee for a trust.

Austria


IMSA                                                                                      76
Fundamentals of Business

    AG (Aktiengesellschaft): ≈ PLC (UK). Minimum capital €70,000.

    GmbH (Gesellschaft mit beschränkter Haftung): ≈ Ltd. (UK). Minimum capital
      €35,000.

    KG (Kommanditgesellschaft): limited partnership

    OG (Offene Gesellschaft): general partnership

    Genossenschaft: Cooperative

See also help.gv.at (Austrian government site, in German)


 Belarus
       ААТ (Адкрытае акцыянернае таварыства): ≈ PLC (UK), open
       ЗАТ (Закрытае ацыянернае таварыства): ≈ PLC (UK), closed
       ІП (індывідуальны прадпрымальнік): sole proprietorship
       ЧУП (Частнае унітарнае прадпрыемства): private unitary enterprise
       ТАА (Таварыства з абмежаванай адказнасцю): ≈ Ltd. (UK)

 Belgium
Dutch, French or German names may be used.

       NV (Naamloze Vennootschap)/SA (Societé Anonyme): ≈ PLC (UK)
       BVBA (Besloten Vennootschap met Beperkte Aansprakelijkheid)/SPRL (Société
        Privée à Responsabilité Limitée): ≈ Ltd. (UK)
       EBVBA (Eenpersoons Besloten Vennootschap Met Beperkte
        Aansprakelijkheid)/SPRLU (Société Privée à Responsabilité Limitée
        Unipersonnelle): type of BVBA/SRPL with a single member
       Comm.V (Gewone Commanditaire Vennootschap)/SCS (Société en Commandite
        Simple): ordinary limited partnership
       Comm.VA (Commanditaire Vennootschap op Aandelen)/SCA (Société en
        Commandite par Actions): limited partnership with shares
       CVBA (Coöperatieve Vennootschap met Beperkte Aansprakelijkheid)/SCRL
        (Société Coopérative à Responsabilité Limitée): limited liability cooperative
       CVOA (Coöperatieve Vennootschap met Onbeperkte Aansprakelijkheid)/SCRI
        (Société Coopérative à Responsabilité Illimitée): unlimited liability cooperative
       VOF (Vennootschap Onder Firma)/SNC (Société en Nom Collectif): ≈ general
        partnership

 Bosnia and Herzegovina
       d.d.(dioničko društvo): ≈ PLC (UK)
       d.n.o.(društvo s neograničenom solidarnom odgovornošću): ≈ general partnership


IMSA                                                                                    77
Fundamentals of Business

      d.o.o.(društvo s ograničenom odgovornošću): ≈ Ltd. (UK)
      k.d.(komanditno društvo): ≈ limited partnership

Brazil
      Ltda. (Limitada): ≈ Ltd. (UK)
      S.A. (Sociedade Anônima): ≈ PLC (UK)
      Sociedade em Comandita por Ações: limited partnership with shares
      Sociedade em Comandita Simples: ordinary limited partnership
      Sociedade em Nome Coletivo: ≈ general partnership

Bulgaria
      AD/АД (Aktsionerno drujestvo/Акционерно дружество): joint stock company ≈
       PLC (UK)
      ADSITz/АДСИЦ (Aktsionerno Druzhestvo sus Spetsialna Investitsionna
       Tsel/Акционерно Дружество със Специална Инвестиционна Цел): real estate
       investment trust
      EAD/ЕАД (Ednolichno Aktsionerno Druzhestvo/Еднолично Акционерно
       Дружество): type of AD with a single member
      EOOD/ЕООД (Ednolichno Druzhestvo s Ogranichena Otgovornost/Еднолично
       Дружество с Ограничена Отговорност): type of OOD with a single member
      ET (Ednolichen Turgovetz/Едноличен Търговец): sole proprietorship
      OOD/ООД (Drujestvo s ogranichena otgovornost/Дружество с Ограничена
       Отговорност): ≈ Ltd. (UK)
      KD/КД (Komanditno Druzhestvo/Командитно Дружество): ≈ limited
       partnership
      KDA/КДА (Komanditno Druzhestvo s Aktzii/Командитно Дружество с
       Акции): limited partnership with shares
      SD/СД (Subiratelno Druzhestvo/Събирателно Дружество): ≈ general
       partnership, but having legal personality

Chile
      SpA (Sociedad por acciones): limited partnership with shares
      EIRL (Empresa Individual de Responsabilidad Limitada): individual enterprise
       with limited liability
      S.A. (Sociedad Anónima): ≈ PLC (UK)
      LTDA. (Sociedad de responsabilidad limitada): ≈ Ltd. (UK)

China
      有 公 : ≈ Ltd. (UK). See also Partnership (China).
        限 司
      股 有 公 : ≈ PLC (UK)
        份 限 司



IMSA                                                                                  78
Fundamentals of Business

See below for Hong Kong.

Colombia
      Ca. (y Compañía): company, shares with minor partners
      SCA (Comandita por acciones): limited partnership with shares.
      S. en C. (Comandita simple): limited partnership Commonly used for family
       business
      Ltda. (Limitada): ≈ Ltd. (UK)
      S.A. (Sociedad Anónima): ≈ PLC (UK)
      E.U.:(Empresa Unipersonal) sole proprietorship
      Suc. de Descendants: successors of a previous company

Croatia
      d.d. (dioničko društvo): ≈ PLC (UK)
      d.o.o. (društvo s ograničenom odgovornošću): ≈ Ltd. (UK)
      javno trgovačko društvo: ≈ general partnership
      komanditno društvo: ≈ limited partnership

Czech Republic
      a.s., akc. spol. (Akciová společnost): ≈ PLC (UK). Minimum share capital CZK
       2m (20m for IPOs). Must have a supervisory board in addition to the management
       board.
      s.r.o., spol. s r.o. (Společnost s ručením omezeným): ≈ Ltd. (UK)
      v.o.s. (veřejná obchodní společnost): ≈ general partnership

Denmark
      ApS (Anpartsselskab): ≈ Ltd. (UK). Minimum capital DKK 125,000.
      A/S (Aktieselskab): ≈ PLC (UK). Minimum capital DKK 500,000.
      A.M.B.A. (Andelsselskab med begrænset ansvar): limited liability cooperative
      I/S (Interessentskab): ≈ general partnership
      K/S (Kommanditselskab): ≈ limited partnership

Estonia
      OÜ (Osaühing) ≈ Ltd. (UK). Minimum capital EEK 40,000.
      AS (Aktsiaselts) ≈ PLC (UK). Minimum capital EEK 400,000.
      Tulundusühistu ≈ limited liability cooperative
      TÜ (Täisühing) ≈ general partnership
      UÜ (Usaldusühing) ≈ limited partnership
      FIE (Füüsilisest isikust ettevõtja) ≈ sole proprietorship



IMSA                                                                                  79
Fundamentals of Business

European Economic Area (including the European
Union)
      SCE (Societas Cooperativa Europaea): a European Cooperative (Societas
       Cooperativa Europaea is Latin for "European Cooperative Society").
      SE (Societas Europaea): a European (Public) Limited Company (Societas
       Europaea is Latin for "European Company").

An SE or SCE may be created by registration in any of the EU/EEA Member States, and
is subject to the European Company Statute. It may relocate its registered office to any
other EU/EEA Member State with minimal formalities.

      EEIG (European Economic Interest Grouping): an EU legal entity designed to
       enable cross-border cooperation between companies. It has unlimited liability and
       is not liable for corporation tax.
      (proposed) SPE (Societas Privata Europaea): a European private limited
       company, corresponding to Ltd., GmbH, etc. This form of company is currently
       being proposed by the European Commission.

Finland
      Ay (avoin yhtiö): ≈ general partnership (use optional)
      Ky (kommandiittiyhtiö): ≈ limited partnership
      Oy (osakeyhtiö): ≈ Ltd. (UK). Minimum share capital €2500.
      Oyj (julkinen osakeyhtiö): ≈ PLC (UK)
      Ok (osuuskunta): ≈ cooperative
      T:mi (toiminimi), Yksityinen elinkeinonharjoittaja: sole proprietorship (use
       optional)

Swedish names may also be used:

      Ab (aktiebolag) (=Oy)
      Abp (publikt aktiebolag) (=Oyj)
      Anl., Andelslag (cooperative)
      EEIG (europeisk ekonomisk intressegruppering, European Economic Interest
       Grouping)
      F:ma (firma), Enskild näringsidkare (=T:mi etc.)
      Ideell förening (non-profit organization)
      Kb (kommanditbolag) (=Ky)
      Öppet bolag (=Ay)
      Stiftelse (foundation)

France
      SA (Société anonyme): ≈ PLC (UK)


IMSA                                                                                  80
Fundamentals of Business

      EURL (Entreprise unipersonnelle à responsabilité limitée): single-person
       enterprise with limited liability
      Investment funds:
           o FCP (Fonds commun de placement) (unincorporated investment fund)
           o SICAF (Société d'investissement à capital fixe) (incorporated investment
               fund)
           o SICAV (Société d'investissement à capital variable) (incorporated
               investment fund)
      SASU (Société par actions simplifiée unipersonnelle): type of SAS with a single
       member
      Sàrl, SARL, SàRL (Société à responsabilité limitée): ≈ Ltd. (UK)
      SCA (Société en commandite par actions): limited partnership with shares
      SCS (Société en commandite simple): ordinary limited partnership
      SNC (Société en nom collectif): ≈ general partnership
      SCOP (Société coopérative): ≈ cooperative
      SAS (Société par actions simplifiée): a simplified type of SA, often used for
       subsidiaries. It has a président (chairman) but no board.

Germany
      AG (Aktiengesellschaft): ≈ PLC (UK). Minimum capital €50,000.
      GmbH (Gesellschaft mit beschränkter Haftung): ≈ Ltd. (UK). Minimum capital
       €25,000. If under the trade name "Unternehmergesellschaft
       (haftungsbeschränkt)", its minimum capital is € 1 (times the number of shares).
      KG (Kommanditgesellschaft): ≈ limited partnership
      KGaA (Kommanditgesellschaft auf Aktien): limited partnership with shares
      GmbH & Co. KG and GmbH & Co. KGaA: a special type of
       Kommanditgesellschaft in which the general partner is a GmbH. The GmbH &
       Co. KGaA it is a variant with shares.
      AG & Co. KG and AG & Co. KGaA: a special type of Kommanditgesellschaft in
       which the general partner is an Aktiengesellschaft. The AG & Co. KGaA is a
       variant with shares.
      OHG (Offene Handelsgesellschaft): ≈ general partnership. No minimum capital,
       full liability of partners.
      GbR (Gesellschaft Bürgerlichen Rechts): partnership under civil law. No
       minimum capital, full liability of partners, non-business or small-business
       activities only.
      Partenreederei: A form of combined and continued ownership of a single
       merchant vessel.
      PartG (Partnerschaftsgesellschaft): type of partnership available to certain
       professions like lawyer, physician or tax consultant and similar.
      e.G. (eingetragene Genossenschaft): ≈ cooperative

Greece
      A.E. (Anonimi Eteria/Ανώνσμη Εταιρία): ≈ PLC (UK), minimum capital €60,000


IMSA                                                                                 81
Fundamentals of Business

       E.E. (Eterorithmos etaria/Ετερόρρσθμος Εταιρία): limited partnership
       E.P.E. (Eteria Periorismenis Euthinis/Εταιρία Περιορισμένης Εσθύνης): ≈ Ltd.
        (UK), minimum capital €18,000
       M.E.P.E. (Monoprosopi Eteria Periorismenis Euthinis/Μονοπρόσωπη ΕΠΕ): type
        of E.P.E. with a single member
       O.E. (Omorithmos etaria/Ομόρρσθμος Εταιρία): general partnership
       Α.Β.Ε.Ε. (Anonimi Biomixaniki Emporiki Eteria/ Ανώνσμη Βιομητανική
        Εμπορική Εταιρεία)
       Ο.Β.Ε.Ε. (Omorithmi Biomixaniki Emporiki Eteria/ Ομόρρσθμη Βιομητανική
        Εμπορική Εταιρεία)

 Hong Kong
                         限 司
        Ltd. (Limited)/有 公 : may denote either a private or public company limited by
        shares, or a company limited by guarantee. Under the Hong Kong Companies
        Ordinance (Chapter 32), the name of a Hong Kong incorporated company may be
        registered in either the English or Chinese language, or both.

 Hungary
       e.v. (egyéni vállalkozó): sole proprietorship
       e.c. (egyéni cég): sole proprietorship registered at "companies house"
       bt. (betéti társaság): partnership, at least one unlimited/general partner and one
        limited partner
       nyrt. (nyilvánosan működő részvénytársaság): ≈ PLC (UK
       kft. (korlátolt felelősségű társaság): ≈ Ltd. (UK)
       kht. (közhasznú társaság): community interest Ltd. (UK)
       kkt. (közkereseti társaság): ≈ general partnership
       kv. (közös vállalat): joint venture
       rt. (részvénytársaság) limited company with shares
       zrt. (zártkörűen működő részvénytársaság): ≈ Ltd. (UK)

Of these, only nyrt., zrt., and kft. have legal personality.

 Iceland
       ehf. (einkahlutafélag): ≈ Ltd. (UK)
       einstaklingsfyrirtæki: sole proprietorship
       hf. (hlutafélag): ≈ PLC (UK)
       samlagsfélag: ≈ limited partnership
       samvinnufélag: cooperative
       sf. (sameignarfélag): ≈ general partnership

 India


IMSA                                                                                         82
Fundamentals of Business

      Cooperative
      Family Owned Business
      Ltd. (Public Limited Company)): ≈ PLC (UK)
      Partnership
      Public Sector Unit
      Pvt. Ltd. (Private Limited Company): ≈ Ltd. (UK). May have 2–50 shareholders;
       shares may not be traded on a stock exchange.
      Sole Proprietorship
      Unlimited Company

Indonesia
      Fa (Firma): a partnership firm for the purpose of dealing with third parties.
      Koperasi: a cooperative, where the clients/customers are also the owner
      Maatschap: a professional partnership, where the partners are treated as natural
       persons for tax and liability purposes
      Persekutuan Komanditer (Dutch: CV – Commanditaire Vennootschaap): limited
       partnership
      Perusahaan Umum (Perum), Perusahaan Jawatan (Perjan): state-owned entities
       e.g. Perum Peruri, Perjan Rumah Sakit Fatmawati
      PP (Persekutuan Perdata): partnership
      PT (PERSERO) Tbk, PT (PERSERO): state-owned or majority state-owned PT
       Tbk or PT, e.g. PT Bank Mandiri (Persero) Tbk
      PT (Perseroan Terbatas): ≈ Ltd. (UK), e.g. PT Astra Honda Motor
      PT Tbk (Perseroan Terbatas Terbuka or Perseroan Terbuka): ≈ PLC (UK). Listed
       on the Jakarta Stock Exchange, e.g. PT AKR Corporindo Tbk. Formerly also
       Dutch NV (Naamloze Vennootschap)
      UD (Usaha Dagang): sole proprietorship
      Yayasan: foundation

Iran
      ) ‫ شرک ت سهامی عام‬Sherkat Sahami Am): ≈ PLC (UK), public
      ) ‫ شرک ت سهامی خاص‬Sherkat Sahami Khas): ≈ PLC (UK), private
      ) ‫ شرک ت ب ا م س ئىل یت محذود‬Sherkat ba Masouliyat Mahdoud): ≈ Ltd. (UK)
      ) ‫ شرک ت مخ ت لط غ یر سهامی‬Sherkat Mokhtalet Gheyr Sahami): ≈ limited
       partnership
      ) ‫ شرک ت مخ ت لط سهامی‬Sherkat Mokhtalet Sahami): mixed joint-stock partnership
      ) ‫ شرک ت ت ضام نی‬Sherkat Tazamoni): ≈ general partnership
      ) ‫ شرک ت ن س بی‬Sherkat Nesbi): proportional liability partnership
      ‫( شرک ت ت عاون ی ت ىل یذ و م صرف‬Sherkat Ta’avoni Tolid va Masraf): production
       and consumption cooperative

Ireland


IMSA                                                                                 83
Fundamentals of Business

Similar to United Kingdom below, though without the class Community Interest
Company. There were two forms of Company Limited by Guarantee, but only the form
without a share capital is now used. Irish names may also be used, such as cpt
(cuideachta phoiblé theoranta) for PLC, and Teo (Teoranta) for Ltd.

Israel
      B.M./BM/‫( מ"עב‬Be'eravon Mugbal): limited company, usually translated "Ltd." in
       English

Italy
      S.a.p.a (Società in accomandita per azioni): ≈ limited partnership with shares
      S.a.s (Società in accomandita semplice): ordinary limited partnership
      S.c.r.l. (Società cooperativa a responsabilità limitata) cooperative limited
       (liability) company
      S.n.c. ("Società in nome collettivo"): ≈ general partnership
      S.p.A. (Società per Azioni): ≈ PLC (UK)
      S.r.l., Srl, S.R.L. (Società a responsabilità limitata): ≈ Ltd. (UK)

Japan
                                                  社
Business corporations are referred to as kaisha (会 ) and are formed under the Company
Law of 2005.

        式 社
       株 会 (kabushiki-kaisha or kabushiki-gaisha, "K.K.") - lit. "stock company," the
       most typical form of business corporaiton
      有 会 (yūgen-kaisha or yūgen-gaisha, "Y.K.") - lit. "limited company," a close
         限 社
       corporation form for smaller businesses, abolished in 2006
      合 会 (gōdō-kaisha or gōdō-gaisha, "G.K.") - lit. "amalgamated company," a
         同 社
       close corporation form similar to the American LLC
      合 会 (gōshi-kaisha or gōshi-gaisha, "GSK") - corporation similar to a limited
         資 社
       partnership
      合 会 (gōmei-kaisha or gōmei-gaisha, "GMK") - corporation similar to a
         名 社
       general partnership

Corporations formed under other statutes are usually referred to as hōjin (法 , lit. "legal
                                                                            人
person"). These include:

       団 人
       社 法 (shadan-hōjin) - incorporated association (Civil Code)
       団 人
       財 法 (zaidan-hōjin) - incorporated foundation (Civil Code)
      相 会 (sōgo-kaisha or sōgo-gaisha) - mutual insurer (Insurance Business Law)
        互 社
       校 人
       学 法 (gakkō-hōjin) - school corporation (Private School Law)
       教 人
       宗 法 (shūkyō-hōjin) - religious corporation (Religious Corporation Law)
       査 人
       監 法 (kansa-hōjin) - audit corporation (Certified Public Accountant Law)



IMSA                                                                                     84
Fundamentals of Business

       理 法
       税 士 人(zeirishi-hōjin) - tax accounting corporation
       護 法
       弁 士 人(bengoshi-hōjin) - legal services corporation (Attorney Law)
       会 祉 人
       社 福 法 (shakai-fukushi-hōjin) - social welfare corporation (Social Welfare
       Law)
       同 合
       共 組 (kyōdō-kumiai) - cooperative (formed under several specialized statutes)
       用 合
       信 組 (shin'yō-kumiai) - cr union (Cr Union Law)
       用 庫
       信 金 (shin'yō-kinko) - shinkin bank (Shinkin Bank Law)

Types of Public Government Service Groups

       方 共 体
       地 公 団 (chihō-kōkyō-dantai) - local authority (prefectures, cities, etc.)
            部 務 合
         o 一 事 組 (ichibu-jimu-kumiai) - Public service joint venture
            部 務 合
         o 全 事 組 (zenbu-jimu-kumiai) - Public service joint venture

Types of public corporations include:

       殊 人
       特 法 (tokusyu-hōjin) - public service corporation
            団
         o 公 (kōdan) - public investment corporation
            庫
         o 公 (kōko) - public finance corporation
            社
         o 公 (kōsha) - public service corporation
       立 政 人
       独 行 法 (dokuritu-Gyōsei-hōjin) - public service corpration
            立 学 人
         o 国 大 法 (kokuritsu-daigaku-hōjin) - national university corporation
            立 学 人
         o 公 大 法 (kōritsu-daigaku-hōjin) - public university corporation


Kazakhstan
      ТОО (Tovarishchestvo s ogranichennoy otvetstvennostyu/Товарищество с
       ограниченной ответственностью): limited liability company
      АО (Aktsionernoe obschestvo/Акционерное общество): Joint stock company
      ГП (Gosudarstvenoe predpriyatie/Государственное предприятие):
       Gosudarstvenoe predpriyatie
      ИП (Индивидуальные предприниматели)
      КТ (Командитное товарищество)
      ОО (Общественное объединение)
      ОФ (Общественный фонд)
      ОЮЛ (Объединение юридических лиц (ассоциация)
      ПТ (Полное товарищество)
      ПтК (Потребительский кооператив)
      ПрК (Производственный кооператив)
      РО (Религиозное объединение)
      ТДО (Товарищество с дополнительной ответственностью)
      Учр (Учреждение)

South Korea
      주 회 or 株 會 (jusik hoesa): ≈ PLC (UK)
        식 사    式 社


IMSA                                                                              85
Fundamentals of Business

      유 회 or 有 會 (yuhan hoesa): ≈ Ltd. (UK)
         한 사       限 社
                  資 社
       합 회 or 合 會 (hapja hoesa): corporation similar to a limited partnership
         자 사
                  名 社
       합 회 or 合 會 (hapmyoung hoesa): corporation similar to a general
         명 사
       partnership

Latvia
      SIA (Sabiedrība ar ierobežotu atbildību): ≈ Ltd. (UK)
      AS (Akciju sabiedrība): ≈ PLC (UK)

Lithuania
      UAB (Uždaroji Akcinė Bendrovė): ≈ Ltd. (UK)
      AB (Akcinė Bendrovė): ≈ PLC (UK)

Luxembourg
      S.A. (Société anonyme): ≈ PLC (UK)
      S.A.R.L. (Société à responsabilité limitée): ≈ Ltd. (UK)

Macedonia
      А.Д. (Акционерско Друштво): ≈ PLC (UK)
      Д.О.О (Друштво со Ограничена Одговорност): ≈ Ltd. (UK)

Malaysia
      Bhd (Berhad): ≈ PLC (UK)
      Sdn Bhd (Sendirian Berhad): ≈ Ltd. (UK)

Mexico
Business entities according to the "Ley General de Sociedades Mercantiles"
(General Law of Business entities)

      S.A.(Sociedad Anónima): ≈ PLC (UK)
      S. de R.L.(Sociedad de Responsabilidad Limitada): ≈ Ltd. (UK)
      Associates name and "y compañía" or Associates name and "y
       sucesores"(Sociedad en Nombre Colectivo): ≈ Partnership (US)
      S. en C. (Sociedad en Comandita Simple)
      S. en C. por A. (Sociedad en Comandita por Acciones)




IMSA                                                                            86
Fundamentals of Business

Note: Any of this entities can be incorporated as a "Capital Variable" entity, in which
case has to add the " de C.V." sufix to its company name. Example: "S.A. de C.V.", "S.
de R.L. de C.V."

Business entities according to the "Ley del Mercado de Valores" (Stock Market
Law)

      S.A.B. (Sociedad Anonima Bursatil)

Namibia
      Close Corporation*
      Companies*
      Sole Trader*

Netherlands
      Coöperatie ("cooperative"), Onderlinge Waarborgmaatschappij ("mutual
       insurance company"): associations which are allowed to pay dividends to their
       members; liability may be full, limited (B.A.) or excluded (U.A.)
      N.V. (Naamloze Vennootschap): ≈ PLC (UK). The name means "nameless
       company".
      B.V. (Besloten Vennootschap): ≈ Ltd. (UK). The name means "secluded
       company".
      C.V. (Commanditaire Vennootschap): ≈ limited partnership
      Maatschap: ≈ limited liability partnership, a professional partnership where the
       partners are treated as natural persons for tax and liability purposes.
      V.O.F. (Vennootschap Onder Firma): ≈ general partnership

Corporations are registered with a regional Chamber of Commerce, in the Dutch Trade
Register.1

New Zealand
      LTD (Limited): ≈ PLC or Ltd. (UK). All New Zealand limited liability companies
       must use the suffix LTD.

Norway
      ASA (Allmennaksjeselskap): ≈ PLC (UK). Minimum capital NOK 1,000,000
      AS (Aksjeselskap): ≈ Ltd. (UK). Minimum capital NOK 100,000.
      ANS (Ansvarlig selskap): general partnership with mutual liability
      BA (Selskap med begrenset ansvar): cooperatives and companies created by
       legislatation
      BL (Borettslag): housing share company


IMSA                                                                                      87
Fundamentals of Business

      DA (Selskap med delt ansvar): general partnership with apportioned liability
      Enkeltpersonforetak: sole proprietorship
      Etat: state, county or municipal agency
      FKF (Fylkeskommunalt foretak): county enterprise
      HF (helseforetak): subsidiary health enterprise
      IKS (Interkommunalt selskap): inter-municipal enterprise (owners' liability)
      KF (Kommunalt foretak): municipal enterprise (owner's liability)
      KS (Kommandittselskap): ≈ limited partnership
      NUF (Norskregistrert utenlandsk foretak): foreign enterprise registered in Norway
      RHF (regionalt helseforetak): regional health enterprise
      SF (Statsforetak): state enterprise
      Sparebank: savings bank
      Stiftelse: a foundation, with capital but without members or shareholders. It is
       allowed to make a profit, but is more suited for non-commercial purposes.

Pakistan
      Ltd. (Limited): ≈ PLC (UK)
      SME Pvt(ltd): Single member company
      Pvt. Ltd. (Private Limited Company): ≈ Ltd. (UK)

Peru
      S.A. (Sociedad Anónima): ≈ PLC (UK)

regisered companies and non-registered companies

Philippines
      Co. (Company): can be used for general partnerships
      Corp. (Corporation)
      Inc. (Incorporated)
      Ltd. (Limited), Ltd. Co. (Limited Company): for limited partnerships

Older forms (now rarely used)

      Cía (Compañía): for partnerships and other forms of business during the Spanish
       rule
      SA (Sociedad Anónima): formed under Spanish rule

Poland
      jednoosobowa działalność gospodarcza: sole proprietorship
      P.P. (Przedsiębiorstwo Państwowe): state enterprise (has legal personality)



IMSA                                                                                 88
Fundamentals of Business

       S.A. (spółka akcyjna): ≈ PLC (UK). Minimum share capital PLN 100,000
        (approx. €25,000).
       s.c. (spółka cywilna): type of general partnership regulated by the Civil Code
       S.K.A. (spółka komandytowo-akcyjna): limited partnership with shares
       sp.j. (spółka jawna): ≈ general partnership
       sp.k. (spółka komandytowa): ≈ limited partnership
       sp.p. (spółka partnerska): ≈ limited liability partnership. May also be denoted by
        the addition of i partner(zy) ("and partner(s)") to the firm's name.
       Sp. z o.o. (spółka z ograniczoną odpowiedzialnością): ≈ Ltd. (UK)
       Spółdzielnia: ≈ cooperative. Has legal personality. May also be denoted by the
        word Spółdzielczy in the firm's name.

References: (Polish) Commercial Companies Code of 15 September 2000 (Dz.U. No 94 item 1037 as
amended); (Polish) Civil Code of 23 April 1964 (Dz.U. No 16 item 93 as amended); (Polish) Law on
Cooperatives of 16 September 1982 (Dz.U. 2003 No 188 item 1848 as amended)


 Portugal
       CRL (Cooperativa de Responsabilidade Limitada): Limited Liability Cooperative
       S.A. (Sociedade Anónima): ≈ PLC (UK), and these are further classified as:
             o S.A., Sociedade Aberta: a publicly traded corporation (literally "open
                 company").
             o S.F., Sociedade Fechada: a non-publicly traded corporation (literally
                 "closed company")
       Lda. (Limitada): ≈ Ltd. (UK), and these might be:
             o Unipessoal Lda.: as above but with a single owner (literally: "Unipersonal
                 Ltd.")
       SGPS (Sociedade Gestora de Participações Sociais): a holding corporation
        (literally "shareholding management company")

 Romania
       S.A. (Societate pe Acţiuni): ≈ PLC (UK)
       s.c.a. (societate în comandită pe acţiuni): limited partnership with shares
       s.c.s. (societate în comandită simplă): ≈ limited partnership
       s.n.c. (societate în nume colectiv): ≈ general partnership
       S.R.L. (societate cu răspundere limitată): ≈ Ltd. (UK)

 Russia
       ANO/AHO (Avtonomnaya nekommercheskaya organizatsiya/Автономная
        некоммерческая организация): autonomous non-profit organization
       GP/ГП, GUP/ГУП (Gosudarstvennoye unitarnoye predpriyatie/Государственное
        унитарное предприятие): state (unitary) enterprise
       IP/ИП (Individualny predprinimatel/Индивидуальный предприниматель): sole
        proprietorship


IMSA                                                                                               89
Fundamentals of Business

      OAO (Otkrytoye aktsionernoye obshchestvo/Открытое акционерное общество):
       ≈ PLC (UK), open
      OOO (Obshchestvo s ogranichennoy otvetstvennostyu/Общество с
       ограниченной ответственностью): ≈ Ltd. (UK)
      PK/ПK (Proizvodstvenny kooperativ/Производственный кооператив):
       production cooperative
      ZAO/ЗАО (Zakrytoe aktionernoye obshchestvo/Закрытое акционерное
       общество): ≈ PLC (UK), closed (maximum 50 shareholders)

Serbia
      A.D./А.Д. (Akcionarsko društvo/Акционарско друштво): ≈ PLC (UK)
      d.o.o./д.о.о. (Društvo s ograničenom odgovornošću/Друштво с ограниченом
       одговорношћу): ≈ Ltd. (UK)

Singapore
      LLP (limited liability partnership): owners have the flexibility of operating as a
       partnership while enjoying limited liability. An LLP can sue and be sued, acquire
       and hold property, and have a common seal.
      Ltd/Pte Ltd (private limited company): ≈ Ltd. (UK). Maximum 50 shareholders.
       There also exist "exempt private companies", being either owned by no more than
       20 non-corporate shareholders, or wholly state-owned and designated by the
       finance minister as exempt.
      Ltd (public limited company): ≈ PLC (UK). There also exist public companies
       limited by guarantee, which conduct non-profit activities; the finance minister
       may approve the registration of such companies without the addition of the word
       ―Limited‖ or ―Berhad‖ to the name.

Slovakia
      a.s. (Akciová spoločnosť)): ≈ PLC (UK). Minimum share capital SKK 1m
       (approx. €25,000). Must have a supervisory board in addition to the management
       board.
      s.r.o (Spoločnosť s ručením obmedzeným): ≈ Ltd. (UK)

Slovenia
      d.d. (Delniška družba): ≈ PLC (UK)
      d.o.o. (Družba z omejeno odgovornostjo): ≈ Ltd. (UK)

South Africa



IMSA                                                                                  90
Fundamentals of Business

      CC/BK (Close Corporation, Beslote Korporasie): Has 1–10 non-corporate
       members. The name must end "CC" or "BK"; registration number ends /23.
       Registration number and members' names must appear on all correspondence.
      Private Company/Privaat Maatskappy: Has 1–50 shareholders, one or more
       directors. The name must end "(Pty) Ltd"; registration number ends /07.
       Registration number and directors' names must appear on all correspondence.
      Public Company, Afrikaans: Publieke Maatskappy. Has at least 7 shareholders
       (unless it is a wholly-owned subsidiary of another company) and at least two
       directors. The company's name must end in "LTD"; its registration number ends
       in /06.
      Section 21 Company: a non-profit organization.

Spain
      S.A. (Sociedad Anónima): ≈ PLC (UK). Minimum capital €60,101.21.
      S.L. (Sociedad Limitada): ≈ Ltd. (UK). Minimum capital €3,012.
      S.L.L. (Sociedad Limitada Laboral): "labour limited corporation"
      S.L.N.E. (Sociedad Limitada Nueva Empresa). Similar to S.L., it was introduced
       in 2003 to speed up new company registration (registration can be completed in
       one day). Minimum capital €3,012.

Sweden
      AB (Aktiebolag): ≈ Ltd. (UK). Minimum capital SEK 100,000.
      AB (publ) (Publikt aktiebolag): ≈ PLC (UK). Minimum capital SEK 500,000.
      Ek. för. (Ekonomisk förening): economic association
           o Bostadsrättsförening: home-owners' association
           o Hyresrättsförening: home-renters' association
           o Kooperativ: cooperative
      Enskild firma: sole proprietorship
      HB (Handelsbolag): ≈ general partnership
      KB (Kommanditbolag): ≈ limited partnership
      Enkelt bolag: Regulated partnership between two parts (Companys or private
       persons)
      Ideell förening: non-profit organization

Switzerland

German                 French        Italian     Notes


AG                     SA (Société               ≈ PLC (UK) or Inc. (US). Min. share
                                     SA
(Aktiengesellschaft)   anonyme)                  capital CHF 100,000. Bearer or
                                     (Società
                                                 registered shares, of a par value of


IMSA                                                                                   91
Fundamentals of Business

                                      anonima) min. CHF 0.01 each. Details of
                                               shareholders generally not publicly
                                               available (except for main
                                               shareholders and management shares
                                               of publicly listed companies).


                                              ≈ Ltd. (UK), LLC (US). Min. capital
                                              CHF 20,000. Registered shares only,
                                   Sagl
GmbH (Gesellschaft Sàrl (Société à            of a par value of min. CHF 100 each.
                                   (Società a
mit beschränkter   responsabilité             Name, address and share of each
                                   garanzia
Haftung)           limitée)                   owner (and any changes) publicly
                                   limitata)
                                              recorded in the Official Register of
                                              Commerce (http://zefix.admin.ch/).



Thailand
                          , name format      corporation name        (         ): ≈
       PLC (UK). Minimum 15 shareholders.
                          (name format       corporation name       ): ≈ Ltd. (UK).
       Minimum three shareholders.
                        (name format            corporation name        ): ≈ limited
       partnership
                                  (name format            corporation name): ≈
       general partnership

Ukraine
      DAT/ДАТ (Державне акціонерне товариство): ≈ PLC (UK), national
      FOP/ФОП (фізична особа підприємець): sole proprietorship
      KT (Командитне товариство): ≈ limited partnership
      PT/ПT (Повне товариство): ≈ general partnership
      TDV/ТДВ (Товариство з додатковою відповідальністю): "additional liability
       company"
      TOV/TOB (Товариство з обмеженою відповідальністю): ≈ Ltd. (UK).
       Minimum capital UAH 50,000.
      VAT/ВАТ( Вiдкрите акцiонерне товариство): ≈ PLC (UK), public. Minimum
       capital UAH 500,000.
      ZAT/ЗАТ (Закрите акцiонерне товариство): ≈ PLC (UK), private

Company formation is regulated by the Ukrainian Civil Code and Business Code.

United Kingdom


IMSA                                                                                    92
Fundamentals of Business

      CIC or Community interest company
      Company limited by guarantee. Such a company must include Limited or Ltd. at
       the end of its name (so cannot readily be distinguished from a private company
       limited by shares), unless it cannot distribute its profits. Guarantee companies are
       commonly used by not for profit organizations, which do not include Ltd. at the
       end of their names.
      Cooperative
      General partnership
      LLP or Limited liability partnership
      LP or Limited partnership
      Ltd. or Cyf (Limited, or Welsh Cyfyngedig): a private company limited by shares,
       the shares not being traded publicly
      PLC or Ccc (public limited company, or Welsh Cwmni Cyfyngedig Cyhoeddus): a
       company whose shares may be traded publicly. Requires an authorized minimum
       share capital of £50,000;2 of which it must have allotted shares to the value of at
       least £50,000 and a minimum of 25% must be fully paid up prior to starting
       business.
      Sole trader
      Unlimited company (or Welsh Anghyfyngedig). A company with share capital
       whose members or shareholders do not enjoy limited liability in case of the
       company's insolvency. It is not a requirement to use Unltd, Ultd or Unlimited
       after the company name, and most unlimited companies do not. Unlimited
       companies are exempted from filing accounts with the Registrar of Companies for
       public disclosure, subject to a few exceptions (unless the company was a qualified
       subsidiary or a parent of a limited company during the accounting period).

United States
In the United States, the individual states incorporate most businesses, and some special
types are incorporated by the federal government.

For federal tax purposes, the Internal Revenue Service has separate entity classification
rules. Under the rules, an entity may be classified as a corporation, a partnership or
disregarded entity, and a corporation may be either an S corporation or a C corporation.

Federally incorporated

      N.A. (National Association), a designation used by national banks
      NT&SA (National Trust and Savings Association), a less common designation
       used by national banks
      Federal Cr Union
      Federal Savings Bank

Many governmental units are specially formed public corporations and some private
organizations have received a charter from Congress.




IMSA                                                                                    93
Fundamentals of Business

State incorporated

The following are the main business designations and types:

      Corp., Inc. (Corporation, Incorporated): used to denote corporations (public or
       otherwise). These are the only terms universally accepted by all 51 corporation
       chartering agencies in the United States. However in some states other suffixes
       may be used to identify a corporation, such as Ltd., Co./Company, or the Italian
       term S.p.A. (in Connecticut; see under Italy). Some states that allow the use of
       "Company" prohibit the use of "and Company", "and Co.", "& Company" or "&
       Co.". In some states individuals and partnerships may register a fictitious name
       with the word "Company" in it. For a full list of allowed designations by state, see
       the table below. See also Delaware corporation, Nevada corporation,
       Massachusetts business trust.
      General partnership
      LLC, LC, Ltd. Co. (limited liability company): a form of business whose owners
       enjoy limited liability, but which is not a corporation. Allowable abbreviations
       vary by state. Note that Ltd. by itself is not a valid abbreviation for an LLC,
       because in some states (e.g. Texas), it may denote a corporation instead. See also
       Series LLC.
      LLLP (limited liability limited partnership): a combination of LP and LLP,
       allowable in some states
      LLP (limited liability partnership): a partnership where a partner's liability for the
       debts of the partnership does not include acts of professional negligence or
       malpractice
      LP (limited partnership): a partnership where some partners have unlimited
       liability and others have limited liability
      PLLC (professional limited liability company): Some states do not allow certain
       professionals to form an LLC that would limit the liability that results from the
       services the professionals provide such as doctors, medical care; lawyers, legal
       advice; and accountants, accounting services, when the company formed offers
       the services of the professionals. Instead states allow a PLLC or in the LLC
       statutes, the liability limitation only applies to the business side, such as crors of
       the company, as opposed to the service side, the level of medical care, legal
       services, or accounting provided to clients. This is meant to maintain the higher
       ethical standards that these professionals have committed themselves to by
       becoming licensed in their profession and not immune to malpractice suits.
      Professional corporations (abbreviated as PC or P.C.) are those corporate entities
       for which many corporation statutes make special provision, regulating the use of
       the corporate form by licensed professionals such as attorneys, architects, and
       doctors.
      Sole proprietorship


Required designations for corporations, by state:

    State                 Required in Corporation name                       Authority


IMSA                                                                                      94
Fundamentals of Business

               "corporation," or "incorporated," or an abbreviation of    § 10-2B-4.01(a)(1)
  Alabama        one of such words, or if a banking corporation the        Code of Alabama
                      words "bank," "banking," or "bankers"                     1975
                    "corporation", "company", "incorporated", or
                 "limited", or an abbreviation of one of these words;     §10.06.105 (a) and
   Alaska           may not contain the word "city", "borough", or           (b), Alaska
                "village" or otherwise imply that the corporation is a    Corporations Code
                                     municipality.
                  "association", "bank", "company", "corporation",
                "limited" or "incorporated" or an abbreviation of one
               of these words or the equivalent in a foreign language.
                   Corporation may not use "bank", "deposit", "cr          §10-401 Arizona
  Arizona
               union", "trust" or "trust company" unless it also has a     Revised Statutes
                license to operate one. May not use "limited liability
                company" or "limited company" or the abbreviations
                          "L.L.C.", "L.C.", "LLC" or "LC"
               "Corporation", "Company", or "Incorporated", or shall
               contain an abbreviation of one of those words; but the
                name may not end with the word "Company" nor the           §4-26-401 (1),
  Arkansas
                abbreviation "Co." if the final word or abbreviation is    Arkansas Code
                  immediately preceded by "and" or any symbol for
                                        "and"
                  "corporation", "incorporated" or "limited" or an
                 abbreviation of one of such words is required for
                                                                          §202(a), California
 California    closed corporations. May not contain "bank," " trust,"
                                                                          Corporations Code
                   "trustee" or "cr union" unless approved by the
                      Commissioner of Financial Institutions.
               ―corporation‖, ―incorporated‖, ―company‖, ―limited‖,
                 ―corp.‖, inc.‖, ―co.‖ or ―ltd‖; If the corporation is a
                                                                         §7-90-601, Colorado
  Colorado      professional corporation, it must contain the term or
                                                                           Revised Statutes
                 abbreviation ―professional corporation‖, ―p.c.‖, or
                                          ―pc‖.
                "corporation", "incorporated", "company", "Societa         §33-655 General
 Connecticut    per Azioni" or "limited", or the abbreviation "corp.",        Statutes of
                           "inc.", "co.", "S.p.A." or "ltd."                 Connecticut
                  "association," "company," "corporation," "club,"
                  "foundation," "fund," "incorporated," "institute,"
                  "society," "union," "syndicate," or "limited," (or
               abbreviations thereof, with or without punctuation), or      Title 8, §102,
  Delaware
                  words (or abbreviations thereof, with or without         Delaware Code
                 punctuation) of like import of foreign countries or
                 jurisdictions (provided they are written in Roman
                                 characters or letters)
 District of       "corporation," "company," "incorporated," or         § 29-101.08 District
 Columbia      "limited," or shall contain an abbreviation of 1 of such of Columbia Official



IMSA                                                                                          95
Fundamentals of Business

                                       words                                      Code
               "corporation," "company," or "incorporated" or the
                                                                           §607.0401 Florida
   Florida        abbreviation "Corp.," "Inc.," or "Co.," or the
                                                                               Statutes
                      designation "Corp," "Inc," or "Co,"
               'corporation,' 'incorporated,' 'company,' or 'limited,' or
              the abbreviation 'corp.,' 'inc.,' 'co.,' or 'ltd.,' or words or
  Georgia                                                                     O.C.G.A. § 14-2-401
              abbreviations of like import in another language; must
                          not be longer than 80 characters
                "corporation", "incorporated", or "limited", or the         §414-51 Hawaii
   Hawaii
                      abbreviation "corp.", "inc.", or "ltd."               Revised Statutes
               "corporation," "incorporated," "company," "limited,"
               or the abbreviation "corp.," "inc.," "co.," or "ltd.," or
                  words or abbreviations of like import in another
                                                                            §30-1-401 Idaho
   Idaho           language; provided however, that if the word
                                                                                Statutes
                "company" or its abbreviation is used it shall not be
                 immediately preceded by the word "and" or by an
              abbreviation of or symbol representing the word "and"
                                                                             805 ILCS 5/4.05
                   "corporation", "company", "incorporated", or
   Illinois                                                                 Illinois Compiled
                "limited", or an abbreviation of one of such words
                                                                                  Statutes
                   "corporation", "incorporated", "company", or
              "limited", or the abbreviation "corp.", "inc.", "co.", or    § 23-1-23-1 Indiana
  Indiana
                 "ltd.", or words or abbreviations of like import in              Code
                                  another language
                   "corporation", "incorporated", "company", or
              "limited", or the abbreviation "corp.", "inc.", "co.", or
    Iowa                                                                   §490.401 Iowa Acts
                 "ltd.", or words or abbreviations of like import in
                                  another language.
              (except for banks) "association," "church," "college,"
                 "company," "corporation," "club," "foundation,"
              "fund," "incorporated," "institute," "society," "union,"
                                                                            §17-6002 Kansas
   Kansas      "university," "syndicate" or "limited," or one of the
                                                                                Statutes
              abbreviations "co.," "corp.," "inc.," "ltd.," or words or
              abbreviations of like import in other languages if they
                    are written in Roman characters or letters
                "corporation", "incorporated" or the abbreviation
               "Inc.," or the word "company" or the abbreviation
                                                                           §273.177 Kentucky
  Kentucky    "Co."; but if the word "company" or the abbreviation
                                                                            Revised Statutes
              "Co." is used, it may not be immediately preceded by
                     the word "and" or the abbreviation "&."
                   (except for railroad, telegraph and telephone
                  corporations) "Corporation", "Incorporated" or
                                                                            §12:23 Louisiana
 Louisiana     "Limited", or the abbreviation of any of those words,
                                                                            Revised Statutes
                or may contain instead the word "Company" or the
              abbreviation "Co." if the latter word or abbreviation is


IMSA                                                                                           96
Fundamentals of Business

                  not immediately preceded by the word "and" or the
                   symbol "&". No corporate name shall contain the
                phrase "doing business as" or the abbreviation "d/b/a".
                  Only a bank or bank holding company is allowed to
                  use any of "bank", "banker", "banking", "savings",
                 "safe deposit", "trust", "trustee", "building and loan",
                   "homestead", "cr union", "insurance", "casualty",
                       "redevelopment corporation", or "electric
                                      cooperative".
                  words or abbreviations of words that describe the
                     nature of the entity, including "professional           for business
                       association," "corporation," "company,"          corporations: Title 13-
                   "incorporated," "chartered," "limited," "limited        C § 401 Maine
                      partnership," "limited liability company,"         Revised Statutes; for
   Maine
                  "professional limited liability company," "limited          non-profit
                  liability partnership," "registered limited liability corporations: Title 13-
                 partnership," "service corporation" or "professional     B § 301-A Maine
                corporation"; beginning July 1, 2007 may also include     Revised Statutes;
                         "limited liability limited partnership"
                For Corporations: "Company", if it is not preceded by
                    the word "and" or a symbol for the word "and";
                     "Corporation", "Incorporated" or "Limited" or
                     abbreviations; for Limited liability companies:
                "limited liability company", "L.L.C.", "LLC", "L.C.",    Maryland Code
                 or "LC"; for Limited liability partnerships: "limited  CORPORATIONS
  Maryland      liability partnership", "L.L.P." or "LLP"; for Limited       AND
                 partnerships: "limited partnership", "L.P.", or "LP"; ASSOCIATIONS § 1-
                  for Limited liability limited partnerships: "limited        502
                liability limited partnership", "L.L.L.P.", or "LLLP";
                  for Professional corporations: "chartered", "chtd.",
                   "professional association", "P.A.", "professional
                                 corporation", or "P.C."
                                                                             GENERAL LAWS
                                                                                    OF
                 "any name which, in the judgment of the secretary,
Massachusetts                                                               MASSACHUSETTS
                         indicates that it is a corporation"
                                                                            Chapter 155: Section
                                                                                     9
                                                                             Act 284 of 1972
                                                                             Section 450.1211
                    "corporation", "company", "incorporated", or
                                                                               MICHIGAN
  Michigan           "limited" or shall contain 1 of the following
                                                                               BUSINESS
                         abbreviations, corp., co., inc., or ltd.
                                                                             CORPORATION
                                                                                   ACT
                 nonprofit corporations are not required to use any of        Chapter 302A,
                these words; for business corporations, they must use        Section 302A.115
 Minnesota
                 "corporation," "incorporated," or "limited," or shall       Minnesota Statutes
                   contain an abbreviation of one or more of these             (for Business


IMSA                                                                                            97
Fundamentals of Business

                words, or the word "company" or the abbreviation           Corporations);
               "Co." if that word or abbreviation is not immediately       Chapter 317A,
                 preceded by the word "and" or the character "&"          Section 317A.115
                                                                          Minnesota Statutes
                                                                           (for non-profit
                                                                            corporations)
                    "corporation," "incorporated," "company" or
               "limited," or the abbreviation "corp.," "inc.," "co." or     § 79-4-4.01
 Mississippi
                  "ltd." or words or abbreviations of like import in       Mississippi code
                                  another language
                   "corporation", "company", "incorporated", or           Chapter 351 Section
  Missouri     "limited", or shall end with an abbreviation of one of      351.110 Missouri
                                     said words                            Revised Statutes
                    "corporation", "incorporated", "company", or
                 "limited"; the abbreviation "corp.", "inc.", "co.", or   35-1-308 Montana
  Montana
               "ltd."; or words or abbreviations of similar meaning in     Code Annotated
                                   another language
               corporation, incorporated, company, or limited, or the
                  abbreviation corp., inc., co., or ltd., or words or
                 abbreviations of like import in another language,
                                                                      Section 21-2028 State
  Nebraska        except that a corporation organized to conduct a
                                                                       of Nebraska Statutes
                banking business under the Nebraska Banking Act
                   may use a name which includes the word bank
                   without using any such words or abbreviations
                 No specific requirements stated except that a name
               appearing to be that of a natural person and containing
                   a given name or initials must not be used as a
                 corporate name except with an additional word or          78.035 Nevada
  Nevada
                  words such as ―Incorporated,‖ ―Limited,‖ ―Inc.,‖         Revised Statutes
               ―Ltd.,‖ ―Company,‖ ―Co.,‖ ―Corporation,‖ ―Corp.,‖ or
                other word which identifies it as not being a natural
                                        person
                                                                           New Hampshire
                                                                           Revised Statutes
   New          Contain the word "corporation," "incorporated," or          TITLE XXVII;
 Hampshire     "limited" or the abbreviation "corp." ""inc.", or "ltd."   Section 293-A:4.01
                                                                             for business
                                                                             corporations
                 Shall contain the word "corporation," "company,"
                                                                          New Jersey Statutes
 New Jersey    "incorporated," or shall contain an abbreviation of one
                                                                               14A:2-2
                of those words, or shall include the abbreviation Ltd.
           contain the separate word "corporation," "company,"
                                                                   New Mexico Statutes
New Mexico "incorporated" or "limited" or shall contain a separate
                                                                   Unannotated 53-11-7
                    abbreviation of one of these words
 New York      Shall contain the word "corporation", "incorporated"         New York State


IMSA                                                                                          98
Fundamentals of Business

              or "limited", or an abbreviation of one of such words; Consolidated Laws,
                     there is also a long list of words a business   Business Corporations
                corporation is not allowed to use without additional  Law §301; Not-For-
                 approval from other agencies including "board of     Profit Corporations
              trade", "state police", "urban development", "chamber       Law, §301
                 of commerce", "state trooper", "urban relocation",
                     "community renewal", "tenant relocation",
                  "acceptance", "endowment", "loan", "annuity",
                   "fidelity", "mortgage", "assurance", "finance",
                              "savings" and many others
                a corporation must contain the word "corporation",
                   "incorporated", "company", or "limited", or the
               abbreviation "corp.", "inc.", "co.", or "ltd."; a limited
                 liability company must contain the words "limited
                 liability company" or the abbreviation "L.L.C." or
              "LLC", or the combination "ltd. liability co.", "limited
                 liability co.", or "ltd. liability company"; a limited
                   partnership that is not a limited liability limited
                      partnership must contain the words "limited           North Carolina
   North
                partnership", the abbreviation "L.P." or "LP", or the      General Statutes §
  Carolina
                  combination "ltd. partnership"; a limited liability          55D-20
              limited partnership must contain the words "registered
                   limited liability limited partnership" or "limited
                   liability limited partnership" or the abbreviation
                 "L.L.L.P.", "R.L.L.L.P.", "LLLP", or "RLLLP"; a
                registered limited liability partnership's name must
                     contain the words "registered limited liability
                partnership" or "limited liability partnership" or the
               abbreviation "L.L.P.", "R.L.L.P.", "LLP" or "RLLP".
              must contain the word "company", "corporation",
            "incorporated", "limited", or an abbreviation of one or
                more of these words; may not contain the words
                                                                    North Dakota Century
North Dakota "limited liability company", "limited partnership",
                                                                      Code 10-19.1-13
                "limited liability partnership", "limited liability
               limited partnership", or any abbreviation of these
                                      words.
               It shall end with or include the word or abbreviation
                                                                           Ohio Revised Code
    Ohio             "company," "co.," "corporation," "corp.,"
                                                                               §1701.05
                             "incorporated," or "inc."
               The name of the corporation which shall contain one
                     of the words ―association‖, ―company‖,
                   ―corporation‖, ―club‖, ―foundation‖, ―fund‖,            Oklahoma Statutes
 Oklahoma
                  ―incorporated‖, ―institute‖, ―society‖, ―union‖,             §18-1006
                ―syndicate‖, or ―limited‖ or abbreviations thereof,
                           with or without punctuation
               For private corporations it shall contain one or more        Oregon Revised
  Oregon
                   of the words ―corporation,‖ ―incorporated,‖             Statutes 60.094 for


IMSA                                                                                         99
Fundamentals of Business

               ―company‖ or ―limited‖ or an abbreviation of one or Private Corporations;
                  more of those words; shall not contain the word     ORS 65.094 for Non-
               ―cooperative.‖ For non-profit corporations there is no Profit corporations
               specific requirement except the name cannot imply a
                purpose not dictated in its articles of incorporation
                 and cannot contain the word "cooperative" or the
                           phrase "limited partnership."
             Corporation, Corp., Company, Co., Incorporated, Inc.,
             Limited, Ltd., Association., Fund., Syndicate or words         Pennsylvania Code,
Pennsylvania
             or abbreviations of like import in languages other than         Chapter 19, §23.3
                                     English.
                   "corporation," "company," "incorporated," or            Rhode Island General
Rhode Island
                "limited," or an abbreviation of one of these words         Laws § 7-1.2-401
                   "corporation", "incorporated", "company", or
                                                                            South Carolina Code
   South        "limited", the abbreviation "corp.", "inc.", "co.", or
                                                                           of Laws Section 33-4-
  Carolina       "ltd.", or words or abbreviations of like import in
                                                                                   101
                                  another language
             corporation, incorporated, company, or limited, or the     South Dakota
South Dakota    abbreviation, corp., inc., co., or ltd., or terms or Codified Laws 47-1A-
                abbreviations of like import in another language              401
                 "corporation," "incorporated," "company," or the
                  abbreviation "corp.," "inc.," "co.," or words or
                 abbreviations of like import in another language
                                                                              § 48-14-101
 Tennessee      (provided they are written in Roman characters or
                                                                             Tennessee Code
                letters); existing corporations which were formed
                  using only "limited" or "ltd" are not required to
                                 change their name
               "corporation," "company," or "incorporated," or shall
                 contain an abbreviation of one of such words, and          Art. 2.05 Business
   Texas
                   shall contain such additional words as may be             Corporation Act
               required by law; shall not contain the word "lottery."
                  "corporation", "incorporated", "company"; the
                 abbreviation: "corp.", "inc." or "co." or words or
                   abbreviations of like import to the words or
               abbreviations listed in another language; without the
                   written consent of the United States Olympic             § 16-10a-401 Utah
    Utah
                Committee, may not contain the words "Olympic",                   Code
                "Olympiad", or "Citius Altius Fortius"; without the
                   written consent of the Division of Consumer
                Protection may not contain the words "university",
                              "college" or "institute"
                    "corporation," "incorporated," "company," or
               "limited," or the abbreviation "corp.," "inc.," "co.," or     Title 11A, § 4.01
  Vermont
                  "ltd.," or words or abbreviations of like import in        Vermont Statutes
                      another language; shall not have the word



IMSA                                                                                        100
Fundamentals of Business

               "cooperative" or any abbreviation thereof as part of its
                name unless the corporation is a worker cooperative
                                    corporation;
                    "corporation," "incorporated," "company," or
                                                                            § 13.1-630. Code of
  Virginia      "limited," or the abbreviation "corp.," "inc.," "co.," or
                                                                                  Virginia
                                         "ltd."
                     "corporation," "incorporated," "company," or
                "limited," or the abbreviation "corp.," "inc.," "co.," or
                "ltd."; must not include "Bank," "banking," "banker,"
                                                                          § 23B.04.010 Revised
 Washington        "trust," "cooperative," or any combination of the
                                                                           Code of Washington
                words "industrial" and "loan," or any combination of
                 any two or more of the words "building," "savings,"
                     "loan," "home," "association," and "society,"
                   "corporation", "incorporated", "company" or
              "limited", or the abbreviation "corp.", "inc.", "co." or      §31D-4-401 West
West Virginia
                "ltd.", or words or abbreviations of like import in          Virginia Code
                                 another language
                                                                        §180.0401 Wisconsin
               "corporation", "incorporated", "company" or "limited" Statutes (for Stock
                or the abbreviation "corp.", "inc.", "co." or "ltd." or   corporations) and
 Wisconsin
                  words or abbreviations of like import in another      §181.0401 Wisconsin
                                      language                            Statutes (for non-
                                                                         stock corporations)
               Unclear; apparently any of "corporation," "company,"
                                                                             § 17-16-401.
  Wyoming      "incorporated," and probably the usual abbreviations
                                                                            Wyoming Statutes
                           of "Corp." "Co." and "Inc."


Uruguay
      S.A. (Sociedad Anónima): ≈ PLC (UK)
      S.A.F.I. (Sociedad Anónima Financiera de Inversión)
      S.R.L. (Sociedad Responsabilidad Limitada): ≈ Ltd. (UK)

Uzbekistan
      MChJ (Mas'uliyati Cheklangan Jamiyat/Масъулияти Чекланган Жамият):
       limited liability company

Vietnam
      TNHH/Cty TNHH (Công ty trách nhiệm hữu hạn): limited liability company
      CTCP/Cty CTCP (Công Ty Cổ Phần): Joint Stock Company




IMSA                                                                                         101

								
To top