To be successful, a company must meet its first goal—the identification, creation, and delivery of highly valued products and services. This requires that it possess all thereof the key attributes. Therefore, it’s not surprising that most of your MBA courses are directly related to these attributes. For example, courses in economics, communication, strategy,organizational behavior, and human resources should prepare you for a leadership role and enable you to effectively manage your company’s work force.
Other courses, such as marketing, operations management, and information technology are designed to develop your knowledge of specific disciplines, enabling you to develop the efficient business processes and strong external relationships your company needs.Portions of this corporate finance course will address raising the capital your company needs to implement its plans. In particular, the finance course will enable you to forecast your company’s funding requirements and then describe strategies for acquiring the necessary capital. In short, your MBA courses will give you the skills to help a company achieve its first goal—producing goods andservices that customers want
Recall, though, that it’s not enough just to have highly valued products and satisfied customers. Successful companies must also meet their second goal, which is to generate enough cash to compensate the investors who provided the necessary capital. To help your company accomplish this second goal, you must be able to evaluate any proposal, whether it relates tomarketing, production, strategy, or any other area, and implement only the projects that add value for your investors. For this, you must have
expertise in finance, no matter what your major is. Thus, corporate finance is a critical part of an MBA education and will help you throughout your career.
How Are Companies Organized?
There are three main forms of business organization:
In terms of numbers, about 80 percent of businesses are operated as sole proprietorships, while most of the remainder are divided equally between partnerships and corporations. Based on dollar value of sales, however, about 80 percent of all business is conducted by corporations, about 13 percent by sole proprietorships, and about 7 percent bypartnerships and hybrids. Because most business is conducted by corporations, we will concentrate on them in this course. However, it is important to understand the differences among the various forms.
A sole proprietorship is an unincorporated business owned by one individual. Going into business as a sole proprietor is easy—one merely begins business operations. However,even the smallest business normally must be licensed by a governmental unit.
The proprietorship has three important advantages:
(1) It is easily and inexpensively formed,
(2) it is subject to few government regulations, and
(3) the business avoids corporate income taxes.
The proprietorship also has three important limitations:
(1) It is difficult for a proprietorship to obtain largesums of capital;
(2) The proprietor has unlimited personal liability for the business’s debts, which can result in losses that exceed the money he or she invested in the company; and
(3) The life of a business organized as a proprietorship is limited to the life of the individual who created it.
For these three reasons, sole proprietorships are used primarily for small-business operations.However,
businesses are frequently started as proprietorships and then converted to corporations when their growth causes the disadvantages of being a proprietorship to outweigh the advantages.
A partnership exists whenever two or more persons associate to conduct a non corporate
business. Partnerships may operate under different degrees of formality, ranging from informal, oral...