Let's Get Down to Business...

Form and Structure: They're not the same thing

In order to better understand how organizations work (and to make them work more efficiently), it's important to know the difference between an Organization’s Form and its Structure.

The terms “Form” and “Structure” describe completely opposite aspects of a businesses’ organization. They're not interchangeable and are as different as night and day.

Feedback - Give it early and often

It's important that we communicate with one another about how you're doing in the course.  All too often, evaluations come at the end of a course when it's too late to make mid-course corrections.

How about doing things different and maybe better?

Here's a link to a Confidential Survey where you can give me some feedback on what's working or not working for you:  Click to Give Feedback

Your feedback is confidential.  I'm the only one who will see it.  Access to your feedback is password protected.

Your feedback can also be anonymous if you want.  If you want me to contact you, or know who you are, leave your name and how to contact you.  Otherwise, your feedback will be anonymous if you want it to be.

Let me know early and often how things are going.  Thanks for your help.

Important Dates and Deadlines

Our course may have a "Wait List." 

One of the most valuable aspects of getting your business education at PSU is small class sizes.  If you were attending Harvard and enrolled in their introductory economics course, the lecture hall would be filled with nearly 900 other students. 

At PSU's Business School, maximum class sizes usually have between 45 and 60 of the best and brightest students in the land.  And I'm stricter-than-most when enforcing that guideline, to the chagrin of the students who don't make the cut. 

We'll reconcile the course's membership during our first meeting and then "true it up" on the following Thursday.  If you're on the Wait List, show up on the first day and see what happens.  If you're not on the Wait List or show up after the course's first session, don't expect to get into the course.

Check the University's website to know the last day you can drop the course without incurring a financial penalty.   Drop the course after that date and you'll get a decreasing amount back.  And the longer you wait, the smaller the refund. The percentage of your hard-earned tuition dollars that will be refunded decreases until a date certain.  After that date, all the money you've paid belongs to the University. 

Good luck.

How did Corporations become "Natural Persons?"

We've learned that corporations have most of the rights and duties of "natural persons."  They can buy and sell property, sue and be sued, engage in protected political speech and are obliged to pay taxes. 

Just about the only unnatural characteristic of a corporation is they have perpetual life; a corporation's shareholders can call for its voluntary demise, but they're otherwise immune to the afflictions of mortal humans.

If you were to browse through the "Oregon Business Corporation Act" (ORS Chapter 60), you would not find any statute authorizing or empowering corporations to do (or not do) any of these things.  And if you were to browse through the laws of the other 49 states, you would come up similarly empty-handed.

So what's going on here?  How can this be?  Sometimes it seems like there's a law, rule, code or ordinance that regulates everything.  How can such a basic question as, "What is a corporation?" go unanswered?

The answer is found in a true story from the nation's past when the wild west was being tamed and conflicts of interest didn't particularly upset anyone.

Here's a Big Decision: What should I "Name" my Business?

Starting a business starts with making a very long list of "things-to-do."  And most budding entrepreneurs put naming their new enterprise near the top of that list.

No doubt it's an important thing to do.  First, you'll want your firm's name to be something that's easy for customers to remember. 

You probably will also want the name you pick to be associated with your business's product or service.  Wouldn't it be nice if customers looking for what you sell could easily find you by virtue of the ingenious name you picked?

And last but not least, don't you want to protect your business's name from being misappropriated?  After all, when your new business becomes a roaring success (and there's no doubt this will happen, right?) you'll attract imitators who may try to use your business's name for their own advantage.

There's a short list of rules that corporations registering to do business in Oregon must follow concerning its name. They're important to know and could prove useful for protecting your business's valuable name.

Who Nominates the Candidates for Election to a Company’s Board of Directors?

With another presidential election campaign gearing up, you might wonder whether candidates for a company’s board of directors go through a similar process. Do they also give long-winded speeches, pass out bumper stickers and kiss babies?

Being elected as a Company’s Director is straightforward (and less complicated than a presidential election; companies don’t have an electoral college). Each shareholder gets one vote that’s cast at the company’s annual meeting and the top vote-getter wins.

What’s not so clear is how someone gets “nominated” to be a candidate. Who decided that a candidate is eligible and qualified to be a Director should they be elected? Do candidates actually “run” for office? Who pays a candidate’s campaign expenses?

Questions about how board candidates are chosen usually come up when a company’s shareholders are dissatisfied. Maybe earnings are down or its “ethics” and “values” aren’t what some shareholders want. One way to change things might be getting some “fresh thinking” elected to the Board. But how could that be done, especially if the “rabble-rousers” own just a small amount of the company’s issued stock?

Believe it or not, these questions interest a lot of people. And they have real-world implications that excite real people, not just stockbrokers, CPAs and lawyers.  Let's see if we can answer these questions and, in the process, probably come up with a few more...

Using the Right Term

The Business World has its own language. 

Knowing when and how to use the right term is essential.

Here are a few key terms you'll need to know as you climb to the top of the corporate ladder.

Corporation and Company.  Both terms identify the same form of organization.  Feel free to use them interchangeably.  Don't use them, however, if you are talking about a sole proprietorship or a partnership.

Second-guessing Decisions: The Business Judgment Rule

You're probably curious about a lot of things in the business world.  Here are a couple of head-scratchers.

Have you noticed that most of the big, publicly-held corporations are registered in Delaware?  Why is that?  What put Delaware at the top of the list of best places to register your business? 

And have you also noticed that very few Directors go to jail for the decisions they made (or actions they didn't take) at businesses that committed outlandish crimes?  Why is that?  If a business's shareholder-elected Directors are responsible for its management and the business broke laws or injured someone, shouldn't those Directors be accountable?  Should they bear some personal responsibility? 

Do you think these things are related?  How do you explain what's going on?

And by the way, Enron wasn't a Delaware corporation.  For awhile, Oregon had three, not two, Fortune 500 businesses.  One of those is Precision Cast Parts.  Another is that home-grown shoemaker formerly known as Blue Ribbon Sports headed up by a former Portland State accounting instructor.  The third one was Enron, something no one brags about.  Now aren't you really curious about what's going on? 

Taxing Matters

As we discussed, sole proprietorships and general partnerships are, for tax purposes, "flow-through" entities.  That tongue-twisting term means they are not separately taxed by the IRS or any state or other local government.  Income flows through the entities to the proprietor or partners where it is reported on their personal returns and taxed as ordinary income. 

Things are a little more complicated for corporations, but not all that bad.   Going to the Dentist is always worse than income taxes. 

Selecting an Organizational Form: Three Good Questions

There are two approaches to studying the topic of organizational forms.

Before looking at those approaches, here are the PowerPoint slides from my lecture on organizational forms:

Download Forms of Business Organization (Week 1) - Lecture Notes

Here's the Study Guide for the Course's First Week:

Download First Week Study Guide

The traditional approach takes each form and analyzes their key characteristics.  And that's something we'll do as well. 

• It's important to know that the Corporate form includes an advantage of "limited liability" and a disadvantage of "double taxation." 
• General Partnerships are problematic because of the joint and several liability they impose on their partners, but offer great flexibility when it comes to distributing income, expenses and tax-preference items. 
• Sole proprietorships, last but not least, are extraordinarily simple and don't burden the entrepreneur with administrative demands and expenses.

Consider though another approach that starts with the question, "Which organizational form best fits my business?"

Answering this question requires understanding your business's needs.  And it's a better approach to making the right choice.