Wealth Maximization Concepts Worksheet
Maximizing Shareholder Wealth- MBA/540r4
Bernard Lester is CEO and founder of Lester Electronics the public Lester Electronics, Inc. which earns $500 million annually. In 1984, Bernard took his company public, and it is now traded on the NASDAQ market and rated Baa by a nationally recognized rating agency.
A corporation is owned by shareholders who share the privilege of limited liability and whose liability exposure is usually no greater than their initial investment.
A corporation has a continued life and is not dependent on any one shareholder for
maintaining its legal existence. A key feature of the corporation is the easy divisibility of the ownership interest by issuing shares of stock(Block & Hirt, 2005)
Discuss definitions of wealth maximization (Ross Ch. 1)
The corporate firm
The Corporation
“Of the many forms of business enterprises, the corporation is by far the most important. It is a distinct legal entity. As such, a corporation can have a name and enjoy many of the legal powers of natural persons. For example, corporations can acquire and exchange property.
Corporations can enter into contracts and may sue and be sued. For jurisdictional purposes,
the corporation is a citizen of its state of incorporation. (It cannot vote, however.). Starting a corporation is more complicated than starting a proprietorship or partnership.”
(Ross, et al, 2004 p. 13).
Definitions of Wealth Maximization
John Lin, founder and CEO of Shang-wa Electronics at age 68, John looks forward to spending less time on business and more time with his grandchildren while they are still young. John has never groomed a successor and without one, the business cannot afford for him to slow down. With one son a doctor and the other a commercial architect, John has begun to explore other options that might afford him retirement.
The sole proprietorship represents single person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs(Block & Hirt, 2005). The Sole Proprietorship
“A sole proprietorship is a business owned by one person, and is the cheapest business to form. No formal charter is required, and few government regulations must be satisfied for most industries. A sole proprietorship pays no corporate income taxes. All profits of the business are taxed as individual income. The sole proprietorship has unlimited liability for business debts and obligations. No distinction is made between personal and business assets.
The life of the sole proprietorship is limited by the life of the sole proprietor. Because the only money invested in the firm is the proprietor’s, the equity money that can be raised by the sole proprietor is limited to the proprietor’s personal wealth” (Ross, et al,2004 p.
A corporation was originally designed to allow for the forming of a group to get a single project done, after which it would be disbanded. At the end of the Civil War, the 14th amendment was passed in order to protect the rights of former slaves. At this point, corporate lawyers worked to define a corporation as a “person,” granting them the right to life, liberty and property. Ever since this distinction was made, corporations have become bigger and bigger, controlling many aspects of the economy and the lives of Americans. Corporations are not good for America because they outsource jobs, they lie and deceive, and they knowingly make and sell products that can harm people and animals, all in order to raise profits.
Liability: Investors have limited liability. This protects investors from having litigation brought against them. If the investor is a managing partner, however they then could have their personal assets and property employed to satisfy any debt the S Corp has accrued.
Corporation – “A business organization that exists as a legal entity and provides limited liability to its owners.” (Longenecker, Petty, Palich, Hoy, Pg. 205) The main advantage of a corporation is that the business liability falls onto this entity instead of the individuals that own it. The disadvantages of this organization are found mostly in its formation. A corporation is expensive to create and requires compliance with state
The benefits of a corporation The pierce corporate veil is exposing the shareholders to personal liabilities{RMBCA}. Brennan’s Inc. is a family owned restaurant that has family members as owners and shareholders. The court case involves a dispute with another family member. The corporation is the legal entity and it separates individuals who comprise; therefore, protecting the shareholders from personal liabilities. However, you can pierce the corporate veil:
A corporation, according Understanding Business, is "a state-chartered legal entity with authority to act and have liability separate from its owners, its shareholders" (Nickels 2013, 123). An advantage that is explained in Nickels' text is the "ability to raise more money for investment" (Nickels 2013, 123). This is extremely pertinent to Newell Rubbermaid because it is an organization that thrives on innovation, and there needs to be access to enough capital to bring many of the new, creative ideas, into the marketplace in mass quantities. Secondly, the "ease of ownership change" is extremely important to Newell Rubbermaid due to the financial crisis in 2009, when the ownership of Newell Rubbermaid had changed hands between a variety of institutional investors, showing just how easily the ownership of a large corporation can be transferred (Nickels 2013,
The corporation in a democratic society: in whose interest ought it and will it be run. 1969. Business strategy, (225-39).
Corporations create two kinds of securities: bonds, representing debt, and stocks, representing ownership or equity interest in their operations. (In Great Britain, the term stock ordinarily refers to a loan, whereas the equity segment is called
“…separate legal entity possessed of separate legal rights and liabilities so that the rights of one company in a group cannot be exercised by another company in that group …”
A corporation is a separate legal entity which is incorporated through the legislative process of going through a registration process. A corporation either operates as a non-profit or profit organization. The corporation has to follow the lawful rights and obligations that are different from the employees and shareholders. Corporations have some good and bad with its formation. The creation of a shield that will protect individuals from legal responsibility and personal liabil...
He goes on to explain how they are treated as completely separate from the companies in which they hold shares and receive dividends yet they are not responsible for the company’s debts or liabilities. Furthermore, the companies in which the hold shares must be run in their best interests. Therefore, the interests of the company, which is a separate legal entity, is directly linked with those of the shareholders. “The law treats separate legal personality very seriously in some contexts (shareholders liabilities) while ignoring it in others (shareholder primacy, shareholder control rights).
A sole trader is a one man business. There is just one manager. Although they are the sole manager and owner they can employ staff to work for them. They can employ as many as they want to work for them. A sole trader is self employed, this means they work for themselves, they employed themselves, they for nobody. Sole traders trade with others. They may trade expertise, an example of this would be a business consultant taking on a big job and needing an extra hand just for that job, so this person may employ a person with the expertise he/she needs. Because a sole trader is the sole owner he/she keeps all the profits, unless he/she has any employees. The owner of the business makes all the decisions, he/she will not have anyone telling them what to do. When one wants to set up a sole trader business it is relatively easy. There is little paper work involved bec...
Fera, T. (2000, December 5). Sole proprietorship may save business time and money. Daily Press, p. 13. Retrieved June 23, 2015.
A small business are privately owned corporations, partnerships, or sole proprietorships that have fewer employees and/or less annual revenue than a regular-sized business or corporation. there are many different types of small business such as convenience store, small grocery stores, bakeries, or delicatessens. There are many different typed of ways of starting a business. There are also many types of advantages and disadvantage. (webopedia.com). In today’s world, you will
It is known that corporations play a large part in making the world go around. Many times we read, hear or see stories on companies and why something was done a certain way. The film “The Corporation” has given a whole new insight to not only how businesses operate but what motivates them and their decisions that they make to keep their businesses thriving.
There are many advantages and disadvantages when owning your own business. When you own you own business, it’s known as a sole proprietorship. But with any type of business, there will always be advantages and disadvantages.