The learning objectives IBA QUARTER 1
International Business Awareness
1. Interpret the concepts of globalisation, international business (IB) and global business
within the legal, economic and operational framework in order to get a clear picture
of the world of international business and trade and be able to act upon it effectively.
2. Identify a company’s generic and international strategy based on the value chain and
competitive advantage of the organization.
(Note: generic business strategies are: cost leadership, cost focus, differentiation,
differentiation focus; international strategies are: home replication, multi-domestic, global
or transnational).
3. Outline the pros and cons of several entry modes, i.e export strategies, by
interpreting the business (context), the legal (legal form) and economic
consequences, in order to be able to choose matching entry modes.
International Business Law
4. Name which important type of businesses exist in the international business world,
and list the advantages and disadvantages of each business form in a specific
situation.
5. Identify key aspects of EU law which affects businesses and apply this knowledge to
cases in order to explain how they affect businesses.
6. Interpret important aspects of contract law used in common law countries, to
identify in which cases a contract is reached, and list the consequences of concluding
a contract (liabilities) in a business case.
International Business Economics
7. Outline the indicators of economic growth and of market inefficiencies in order to
find the international sales and foreign direct investment opportunities of
international business operations.
8. Explain how a price is set in different market structures in order to recognize risks
and opportunities.
,LAW
International Business Law
Name which important type of businesses exist in the international business world, and list the
advantages and disadvantages of each business form in a specific situation.
The sole proprietorship
The sole proprietorship, also known as a consultant, independent contractor, or freelancer is a business
owned by a single person. Sole proprietorships are “the most common form of business organization”
and it is the simplest business form under which one can operate a business.
The sole proprietorship is not a legal entity. It simply refers to a natural person who owns the business
and is personally responsible for its debts. A sole proprietorship can operate under the name of its
owner or it can do business under a fictitious name, such as nancy's nail salon. The fictitious name is
simply a trade name--it es not create a legal entity separate from the sole proprietor owner.
The sole proprietorship is ado popular business form due to its simplicity, ease of setup, and nominal
cost. A sole proprietor need only register his or her name and secure local licenses, and the sole
proprietorship is ready for business. A distinct disadvantage, however, is that the owner of a sole
proprietorship remains personally liable for all the business's debts. So, if a sole proprietor business
runs into financial trouble, creditors can bring lawsuits against the business owner. If such suits are
successful, the owner will have to pay the business debts with his or her own money.
The owner of a sole proprietorship typically signs contracts in his or her own name, because the sole
proprietorship has no separate identity under the law. The sole proprietor owner will typically have
customers write checks in the owner's name, even if the business uses a fictitious name. Sole
proprietorships can bring lawsuits (and can be sued) using the name of the sole proprietor owner.
Many businesses begin as sole proprietorships and graduate to more complex business forms as the
business develops.
Advantages of the sole proprietorship
Owners can establish a sole proprietorship instantly, easily, and inexpensively (easiest form of
business to set up and dissolve)
Sole proprietorships carry little, if any, ongoing formalities.
A sole proprietor need not pay unemployment tax on himself or herself (although he or she
must pay unemployment tax on employees).
Owners may freely mix business and personal assets.
Simplicity in retirement plans
Avoids the expense of forming a partnership or corporation
Not required to file a separate tax return (although it will be on a separate schedule)
No need to register with the government (a few states and local governments require sole
proprietorships to possess a business license)
Disadvantages of the sole proprietorship
Owners cannot raise capital by selling an interest in the business.
Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain
value.
You are on your own
Unlimited personal liability for all debts of the business
Limited financing options (cannot raise capital from outside investors)
, Business dissolves when owner dies or sells rights to business (new owner must start new sole
proprietorship)
Owners are subject to unlimited personal liability for the debts, losses, and liabilities of the
business.
Partnership
general and limited partner ship and limited liability partnership (LLP).
In general partnerships, both owners invest their money, property, labor, etc. To the business and
are both 100% liable for business debts. In other words, even if you invest a little into a general
partnership, you are still potentially responsible for all its debt. General partnerships do not require a
formal agreement—partnerships can be verbal or even implied between the two business owners.
A general partnership is formed with two or more partners as business co-owners. A partnership is a
business form created automatically when two or more persons engage in a business enterprise for
profit. Consider the following language from the uniform partnership act: "the association of two or
more persons to carry on as co-owners of a business for profit forms a partnership, whether or not
the persons intend to form a partnership." a partnership--in its various forms--offers its multiple
owners flexibility and relative simplicity of organization and operation. In limited partnerships and
limited liability partnerships, a partnership can even offer a degree of liability protection.
Limited partnerships require a formal agreement between the partners. They must also file a certificate
of partnership with the state. Limited partnerships allow partners to limit their own liability for
business debts according to their portion of ownership or investment.
Partnerships can be formed with a handshake--and often they are. Responsible partners, however, will
seek to have their partnership arrangement memorialized in a partnership agreement, preferably with
the assistance of an attorney. Because partnerships can be formed so easily, partnerships are often
formed accidentally through oral agreements. A partnership is formed whenever two or more persons
engage jointly in business activity to pursue profit.
Don't operate a partnership without a written partnership agreement. Because of its informality and
ease of formation, the partnership is the most likely business form to result in disputes and lawsuits
between owners--oral partnership arrangements are usually the reason.
In a limited liability partnership, or llp, everyone gets limited liability. Its more work to form than a
general partnership, and gives less protection than fancier business structures. But it does give owners
at least some liability protection.
Advantages of the partnership
Owners can start partnerships relatively easily and inexpensively.
Partnerships do not require annual meetings and require few ongoing formalities.
Partnerships offer favorable taxation to most smaller businesses.
Partnerships often do not have to pay minimum taxes that are required of llcs and
corporations.
You have someone to assist you in business matters allowing more time away from the
business
Partners provide additional financial backing as opposed to going it alone in a sole
proprietorship.
Simplicity and flexibility
,Disadvantages of the partnership
All owners are subject to unlimited personal liability for the debts, losses, and liabilities of the
business (except in the cases of limited partnerships and limited liability partnerships).
Each of the partners will have unlimited personal liability for all debts of the business
Business income and expenses reported on a separate tax return
Individual partners bear responsibility for the actions of other partners.
Loss of total control resulting in decision making being done by the team instead of by the
individual
Poorly organized partnerships and oral partnerships can lead to disputes among owners.
The limited liability company (llc)
A limited liability company (llc) is a hybrid between a partnership and corporation. Is america's
newest form of business organization. There is little historical precedent for llcs. The llc is often
described as a hybrid business form. It combines the liability protection of a corporation with the tax
treatment and ease of administration of a partnership. As the name suggests, it offers liability
protection to its owners for company debts and liabilities.
LLC stock is privately owned so being able to transform into a corporation and eventually sell stock to
the public might draw in the financiers.
Advantages of the llc
Llcs do not require annual meetings and require few ongoing formalities.
Owners are protected from personal liability for company debts and obligations.
Llcs enjoy partnership-style, pass-through taxation, which is favorable to many small
businesses.
Limited liability
Hybrid between a partnership and corporation
Owners can report their share of profits or losses on their individual tax returns
Can utilize pass-through taxation (if the owners decide to treat the llc as a sole proprietorship
or a partnership)
Distribution of earnings among members is flexible – profits and losses don’t have to be
distributed in proportion to ownership
Can be managed by owner or outside manager
Can be single owner (a few states require more than one owner)
Disadvantages of the llc
Llcs do not have a reliable body of legal precedent to guide owners and managers, although llc
law is becoming more reliable as time passes.
An llc is not an appropriate vehicle for businesses seeking to become public eventually, or to
raise money in the capital markets.
Llcs are more expensive to set up than partnerships.
Llcs usually requires annual fees and periodic filings with the state.
Some states do not allow the organization of llcs for certain professional vocations.
Generally required by state law to have written operating agreements – rights and duties of the
members much like a partnership agreement
Limited tax benefits versus sole proprietorship or general partnership
No perpetual existence (most states require the operating agreements of an llc to set a limit to
the company’s existence.)
Requirements must be met to sell ownership interests
,Corporation (C-corp)
Corporations are, for tax purposes, separate entities and are considered a legal person. This means,
among other things, that the profits generated by a corporation are taxed as the “personal income”
of the company. Then, any income distributed to the shareholders as dividends or profits are taxed
again as the personal income of the owners. Youre protected from lawsuits, you aren’t personally
liable and have limited liability. Expensive to form.
Advantages of a corporation:
Limits liability of the owner to debts or losses
Profits and losses belong to the corporation
Can be transferred to new owners fairly easily
Personal assets cannot be seized to pay for business debts
Disadvantages:
Corporate operations are costly
Establishing a corporation is costly
Start a corporate business requires complex paperwork
With some exceptions, corporate income is taxed twice
B corp: focusses on social good. (ben and jerrys)
Are designed to let the CEO, the person in charge of the business who may
or may not be an owner, make decisions for social good. Even if those
decisions are a little less profitable, the ceo will not get in trouble with the
stakeholders.
Notes from lecture law 1:
, Sole tradership:
- Total responsibility for all legal liabilities & financial risks.
- He/she has independent control over the business.
- He/she keeps all profits.
General partnership:
Each partner takes an (equal) part in the risks, capital, and share of the business profits, and
participates (equally) in decision making.
Partners:
- Must keep records of all business income & expenses.
- Share profits between them.
The liability for any debts of the business would be the partners.
The partners could each be declared bankrupt.
Limited partnership (LP)
Includes both general partners and limited partners.
A limited partner does not participate in the management
And his liability is limited (usually merely investors).
Limited Liability Partnerships (LLP)
Different from a partnership, closer to a company (next).
All partners have limited liability from errors, omissions, negligence, incompetence, or
malpractice committed by other partners or employees.
All partners can still participate in operating the business.
