Business Structures, Administration, and Theories

Posted on Dec 14, 2024 in Economy

Business Structures

  • f) Corporation: A capital divided into parts called shares, which represent the ownership share of the partner (which entitles you to participate in the distribution of profits).
  • g) Unlimited Company: Partners contribute capital. It is intended to limit its growth, the number of partners, and the ease of transfer of shares (securities that represent a part of capital).
  • h) Intermediate or Joint Ventures:
    • Limited Partnerships: Partnerships in which certain partners (with the capital injection) escape from unlimited liability. They cannot provide work and are deprived of administration, which is solely for general partners.
    • Variable Capital Companies: These are cooperatives.

Component Parts of Business Administration

  • Human Elements:
    • Owners of capital (shareholders).
    • Workers (employees).
    • Administrators of capital (managers).
  • Material Elements:
    • Durable (investments).
    • Non-durable (currents).
  • Intangible Elements:
    • Image.
    • Organization.
    • Objectives and goals.
    • Corporate culture.
    • Know-how.

The Company as a System

The whole universe can be classified as a system; all elements are interrelated. Therefore, the company is also a system. Types of company systems:

  • Open Systems vs. Closed Systems.
  • Black Box Systems vs. Translucent Safety Systems.
  • A system vs. a system composed of subsystems.

Theories of the Firm

Neoclassical Theory

“Perfect operation of the market where buyers and sellers can agree on what the best allocation of resources is.”

  • A large number of suppliers and customers.
  • Perfect information (which we all operate under equal conditions).
  • Freedom of entry and exit in the market.
  • The company:
    • The role of business starts after the pricing.
    • You must decide to allocate resources for maximum benefit; the company runs the “orders” of the market.
    • It simply calculates to be produced by the profit equation.
    • This does not decide the allocation of resources, but the market, and the company is guided by the price.

Theory of Transaction Costs

“To complete the negotiation process (with perfect information), certain costs are produced. Some components will not be willing to stand by what will make the market without perfect information.”

  • The theory is that neoclassical theory is wrong because it is incomplete. It is corrected by adding the concept of transaction cost.
  • Transaction costs are an impediment to economic activity. To fix it, it is proposed that action be taken by the company to reduce these costs.
  • The system itself makes the company involved in the negotiation for the benefit of all. The company proposes taking over all or part of the costs to decrease them.

Definition: Transaction costs are the costs of information (e.g., market research. If this study is done by the consumer, the costs are much higher than if a company makes and distributes information on the market).

  • Includes costs of association, of writing, and enforcing contracts.
  • They arise when one or more parties to a transaction have the opportunity to behave opportunistically and make private profits at the expense of the parties.
  • Include the adverse consequences of opportunistic behavior and also the costs of preventing it.

Types of Costs of Using Market Transactions

  • Costs of gathering information about goods and services, prices, sellers, and buyers.
  • Costs associated with negotiating the terms of the agreement. Costs to provide for contingencies and different assumptions.
  • Costs due to the administration and monitoring of the agreements reached and the fulfillment of the delivery and counter service.

Contract Theory

“Market participants prefer to contract with the company (e.g., workers negotiate their pay with the company and not with the market).”

  • Consumers give the company the provision of goods and services due to the uncertainty organized by the lack of information.
  • The company “guarantees” the remuneration of factors but is paid less than market value to productive factors but assumes the risk; hence, they prefer to hire the firm.

Corporate Finance Theory

“The company is a joint investment project; it is decided how to secure funds and what to do with them.”

  1. The savers provide financing to the company in exchange for financial assets.
  2. The company invests these funds in productive assets.
  3. The profit generated is used to pay the savers who finance the company.

To approve an investment project, the company has to ensure that profitability is greater than the cost.

Corporate Social Theory

“The role of business is to contribute to social welfare. This is an element of society, and as such, it should benefit the system it belongs to.”

  • Opponents of this theory criticize it, saying that social welfare is achieved only with the distribution of wealth and not just by increasing it.
  • There are also those who think that the concept of wealth is different from welfare.