Outline of The Problem of Business Organizations
- I. What is a business
organization
- A. Organization
(a political,
sociological entity
to be governed)
- B. Property (a
thing to be owned)
- C. Legal Fiction
(really something
else: its owners
under a different
name)
- D. Nexus of contracts
- II. What is a business
organization
- A. Pursuit of
profit?
- Legal or accounting
profit? —
no
- B. Production
of goods or service
for sale
- III. Types of organizations
- A. Classifications
by ownership
- 1. Sole Proprietor
(with or without
employees)
- 2. Partnership
- 3. Cooperative
- Producer
- Consumer
- Employee
- 4. Corporation
- 5. Market (Lloyds)
- 6. Not-for-profit
structures
- Self perpetuating
board
- Membership
organizations
- 7. Public or
quasi-public (QUANGOs)
- B. Classifications
by command structure
- 1. Bureaucratic
- 2. Market
- 3. Spokes
- 4. divisions
- C. Classifications
by regulatory statutes
- 1. Agency (common
law)
- 2. Partnership (UPA,
RUPA)
- 3. Limited Partnership
(largely obsolete)
- 4. Limited Liability
Company and Limited
Liability Partnerships
(State LLC, LLP
Acts)
- 5. Close corporations
(state close corporations
acts, IRC subchapter
S, IRC subchapter
C)
- 6. Public corporations
(state corporations
acts (RMBCA as a
model only), 1934
Act, 1933 Act, state
Blue Sky Laws, IRC
subchapter C)
- 7. Regulated industries:
Banking, insurance,
etc. (State and
Federal regulatory
statutes; sometimes
(e.g. banking) special
incorporation statutes)
- 8. Not-for-profits
(state statutes
for cooperatives,
condominiums, churches,
and generic not-for-profits)
- 9. QUANGOs (special
statutes)
- IV. Participants,
inputs and the question
of who is the firm
- A. Capital
- B. Labor
- C. Management
- D. Customers
- E. Suppliers
- F. Tort and pollution
victims
- G. Neighbors, regulators
and community at large
- V. Ownership
- A. Attributes of
ownership:
- 1. to create and to
destroy (close down)
- 2. to hire and fire
- 3. to make basic investment
decisions
- 4. profit as opposed
to wages
- a. entity-based pay
vs. individual performance
based commissions
or wages/salary
- b. Economists speak
of "right to
receive residual return":
is that meaningful?
- 5. right to manage:
determine how job
will be done
- 6. right to change
the rules or to not
be victim of rule
changing (as opposed
to employee at will)
- B. Not always easy
to determine who has
these rights
- 1. Like property law
: BUNDLE OF RIGHTS
- 2. separation of management
and control
- 3. Professional (or
skilled labor)'s right
to determine how to
do job
- 4. Salesmen: profit-based
pay (vs. sales based
commissions), if based
on entity profit,
looks more like profit
sharing than wages.
- 5. Tenure (property
right in job?)
- 6. limited rights
of shareholders
- a. no right to govern
- b. most fundamental
shareholder rights
can be changed without
shareholder vote
- c. staggered boards
and managment contracts
-- no right to fire
- 7. Creditors rights
- a. formal: legal and
contractual
- (1) in bankruptcy:
to govern
- (2) fraudulent conveyance
- (3) covenants
- b. informal
- (1) close banking
relationship
- (2) need to return
to market for further
financing.
- VI. Salomon Brothers
Case Study:
- A. Ownership
- 1. looked like still
a partnership
- a. shareholders had
basically creditors
rights
- b. but after scandal,
??
- 2. Some employees
paid based on enterprise
(or part of enterprise)
profits
- 3. was it shareholders
or creditors that
led to the new regime?
- 4. A market or an
organization?