Lezione di Economia aziendale

It’s easy, in most country you just have to pay a few euros or taxtation, in order

to start this kind of business, it is also very easy to wind down, this is very

flexible business structure, in terms of reporting is very easy, this kind of

business structure are not require to prepare a financial statements. There is

just one owner and one decision maker. One owner means that all the profits

that are generated thought the business activity goes to the owner. Also if the

business is sold, the resources goes to the owner.

However there’s be some disadvantages, especially the liability issues:

Marco is the owner of Marco’s, a small bar in the city centre. During the first

year of operation, the business was very successful

• One day, a customer approaches the counter to order a coffee and,

unfortunately, slips on a recently washed area of the floor

• The customer spends three weeks in hospital and decides to begin

proceedings against Marco’s

• Marco has insurance to cover such incidents, but the insurance does not

cover all costs

• Marco needs to mortgage his house to the bank in order to obtain a

loan

The idea is that is no separation between the business (marco’s bar) and the

individual (Marco), so if something happens concerning the business, there is

an obligations to cover this hospital exprense, this exprense must be covered

by Marco. This might be a great disadvantage for this kind of business.

• Unlimited liability: the owner has full responsibility for business debts

– If the business is unable to meet a financial obligation, the owner's personal

assets can be seized to satisfy the debts

• Limited by skill, time and investment of owner

• Restrictive structure due to non-legal status of the entity

– Difficult to raise additional finance (no additional owners!)

– Personal taxation

• Business will cease to exist if owner leaves, retires or dies

Unlimited liability: the owner has full of responsibility for this debts. If you have

one only owner, all the decision making and the responsibilities are in charge of

this one owner, this means that the governance is somewhat limited by the

skills of the owner, and also the time and the investment of the owner, because

only the owner can provide additional capital business. Basically, only one

owner is allow to manage the business and provide capital to the business. So

is very difficult to raise additional finance. Another point is personal taxation,

taxes are applied to the income of the owner and in some country, the tax rate

increases as the income increases. This implies that this kind of business

structure is not probably the most adequate one for businesses that need

capital that are fast growing, because taxes can be pretty high. If the owner

leaves the business will cess to exist.

• A partnership is an association between two or more persons who:

– carry on a business as partners

– share profits or losses

• Key features

– Enables sharing of ideas, skills and resources

– Easy and cheap to establish

– Some partnerships have a written agreement, others don’t

• Italy: Società di persone

Is an association of two or more people, of course this people become the

owners of the business, they are going to share responsibilities concerning

making the most importnsat decisions during the business and share the

profits. The key figures, there is more people so more people can share ideas,

provide more skills and resources, is still quite easy to be establish, you need

an agreement so you need to sign a contract among the members of the

partnership, that is not required as a sole traider. There are certain type of

partnership that are super easy that can be base on an agreement and some

types more difficult. Partnership identifies some different type of business

structure.

• The partnership agreement should include details of:

– The name of the partnership

– The contributions of cash and other assets to the partnership made by each

partner

• Methods of sharing profits or losses include :

– Sharing according to each partner’s capital contribution

– Splitting profits or losses equally between the partners

– Sharing them based on salary requirements

Is always a good idea to wright down a good agreement to the different owners

of this kind of business structure. The specific contribution that every part give

to the business, can be made using money. Sharing according to each

partner’s capital contribution, is the most common used to share the profits

directly proportional to the capital contribution of each partner, so according to

the partner contribution we define some rules to share the profits.

PARTNERSHIP ADVANTAGES:

• Relatively easy and simple to set up

• Informal business structure – not bound by accounting standards

• Ability to share capital, skills, talents, knowledge and workload between two

or more people

As in the case with of a sole traider rules for reporting are pretty beasy as well,

so you are not require to produce complicated financial statements. The main

difference is that you can benefit from the contribution of the different

partners, can combine resources cash, achievements and so on, you can also

combine knowledge etc…

PARTNERSHIP DISADVANTAGES:

• Unlimited liability*

• Mutual agency: Each partner is an agent for the business, having the right to

enter into contract for the business

– If one partner makes a bad business decision, all partners will have to pay for

it

• Disputes arise from profit sharing and decision making issues

• Changing ownership is difficult: if one partner withdraws, then a new

partnership agreement is needed (or a new partnership must be created)

* In some countries there are limited liability partnerships (UK) or partnership in

which some partners are not liable for business debts (Società in Accomandita

Semplice, Italy)

Unlimited liability, there is a no separation between the single partners and the

business, as before with the sole traider.

Mutual agency means that each partner is an agent for the business…(come

scritto sopra) and also to create some obligations unless is specified on the

contract. In general each partner is responsible for the business and can take

action concerning the business. Mutual agency implies that all the partners are

responsible of the business debt even if the decision of creating this kind of

obligation is associated with one of the partner. That of course, related to this

point that might be conflicts, and so on. Even though this agreement accept

that there is more than one or two owners, change the ownership might be

complicated, you have to wright a new agreement and to redefine rules that

you have find in the previous agreement.

• A company is a business structure that has a separate legal identity from its

owners and is taxed on its taxable income

• Key features

– Owners of a company are known as shareholders

– Independent legal entity (i.e. separate from the people who own, control and

manage it)

– Shareholders have limited liability

– for the purchase price of their shares only (not company debts)

– A company has unlimited life

– not dissolved when owners die or change

• Italy: Società di capitali

A company is a more complex and structured type of business structure, and

the key feature of a company is that there are a separate legal entity from the

owners. And this ha some important implications, the first implication is about

taxation, the income generated by the company is taxed independently from

the income of the owner, a specific tax rate is applied to the income generated

by the income. And then even if there is a separation between the business

entuty and the owners, the owners have limited liability, so they are not fully

responsible for all the business debts and obligations created. The owners of

the company are usually known as shareholders, they own a share of the

company because typically there are more than one owner, this share can be

exchange. About the limited liability: suppose that some person decides to

incorporate a business not using partnership but using a company as business

structure; basically the owners are liable only for the amount of money that

they have provided when purchasing the shares of the company. They can lose

the capital that they have contributet to the business, this is limited liability. An

owner can leave, can transfer his share with another person.

• A proprietary (or private)companyis a company whose ownership is

private

• Private companies cannot offer their shares to the public:

–Shares cannot be traded on stock exchanges (e.g., NYSE, Nasdaq)

–Shares of these businesses are less liquid and the values are difficult to

determine

• Common form of business structure adopted by small and medium sized

enterprises(SMEs)

A private company, is a company whose ownership is private; this means that

the shares of this company cannot easily be transfer, if you have to transfer

this share to another investors this an be hard.

• A public company is a company whose ownership is dispersed among the

general public in many shares, which are freely traded

• The shares of a public company are often traded on a stock exchange (listed

public company):

– The act of being listed allows the market to determine the value of the

company through daily trading

– Listed companies have better opportunities for fundraising

• Common form of business structure adopted large multinational companies

A public company, is a company who owners is typically dispersed, why is

called public? Because the shares of this company can be purchased by the

general part. When a company is listed on exchange, its shares can be easily

acquired, because typically there are people owning some of this shares, and

some other people may want to purchase, if the two partners fund an

agreement, the transaction can be made the shares is transfer from one owner

to the other.

What is the main advantage? You can quite easily do some capital increase, so

to raise additional money that can be used in order to financial your

investment. How this cam be done? The public company, allows a company to

take advantage in moments in which investor think that there are good

opportunities and raise additional capital.

• Limited liability for shareholders

• Corporate tax rate is usually lower than top personal tax rate

– Italy: IRES (27.7%) vs. IRPEF (top 43%)

• Business expansion networks made easier due to legal structure

• Can raise additional capital through public share offerings

If the investors has provided 10000 euros, the investors can lose only thi