A business is an organization, which seeks to provide goods or services to customers
What are the 3 basic kinds of businesses?
1. Manufacturing 2. Merchandising i.Retail
ii.Wholesale 3. Service
What are the only two sources of capital available to start a business and what are their basic advantages and disadvantages?
Debt Financing (borrowing from creditors) i.A—no sacrifice of ownership rights ii.D—(1) must be paid back – temporary (2) consequences of failure to pay can be harsh – bankruptcy or foreclosure (3) can be difficult to qualify
i. A--no requirement to repay contributed capital
ii. some sacrifice of ownership rights (voting, profit-sharing, post-termination resources)
What are the two ways basic ways owners/investors provide equity capital to a business?
1) Capital contributions. (Owners contribute assets for ownership rights.) 2)Retained earnings. (Owners allow assets created through profitable operations to be retained in the business.)
What is the role of the stockholders in corporate governance and operations?
Stockholders have the right to vote for a corporation’s Board of Directors (typically one vote per share). They benefit from dividend distributions and increasing stock values and have the right to share in any net assets available after the payment of liabilities in the event of business termination and liquidation.
What is the role of the board of directors in corporate governance and operations?
The Board of Directors hires and monitors the performance of senior management. They’re also involved in the making of long-term strategic decisions. Board members may or may not be stockholders and are typically compensated for their time and effort.