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BOONE BOWLES

WHAT IS A FIRM AND WHAT DOES IT DO?

MODULE 1

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Agenda

  1. What is a firm?

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  • What are the different types of firms?

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  • Who controls a firm?

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  • What do firms do?

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What is a firm?

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What is a firm?

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What is a firm?

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What is a firm?

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What is a firm?

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What is a firm?

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What is a firm?

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What type of firm?

Type

Liability

Taxation

Continuity

Capital Raising

Sole Proprietorship

Unlimited

Pass-through

Ends with owner

Difficult

Partnership

General partners unlimited

Pass-through

Ends with partner

Moderate

LLC

Limited

Pass-through

Flexible

Moderate

Corporation

Limited

Double taxation (C-corp)

Perpetual

Easy

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What type of firm?

Pct. of Businesses

Pct. of Revenue

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Can you pick the correct firm form?

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Who controls a firm?

Owner

Manager

Sole Proprietorship

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Who controls a firm?

Owners

Managers

Partnership

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Who controls a firm?

Owners

Managers

LLC

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Who controls a firm?

Owners

Shareholders

Manager

CEO

Corporations

Wedge between owners and management

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AGENCY PROBLEM

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What might a CEO care about that shareholders wouldn't care as much about?

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Who do firms do?

Milton Friedman

(Nobel Prize)

Larry Fink

(Blackrock)

Shareholders

Stakeholders

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Who do firms do?

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How do firms maximize value?

By taking on positive NPV projects!

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What did we learn here?

  1. What is a firm?
    • Business/legal entity, pools capital, generates profits.

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  • What are the different types of firms?
    • Sole proprietorships, partnerships, LLCs, Corps.

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  • Who controls a firm?
    • Managers (Agency Problem).

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  • What do firms do?
    • Maximize shareholder value (positive NPV).

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WHERE BUSINESS MEETS LEADERSHIP