Tuesday, June 22, 2010

Business school

A business school is a university-level institution that confers degrees in Business Administration. It teaches topics such as accounting, administration, finance, information systems, marketing, organizational behavior, public relations, strategy, human resource management, and quantitative methods.

Types of business school
2 Notable business school firsts
3 Business school degrees
4 Business school use of case studies
4.1 History of business cases
5 Other approaches to business school
6 Global Master of Business Administration ranking

Types of business school

They include schools of business, business administration, and management. There are four principal forms of business school.

1.Most of the university business schools are faculties, colleges or departments within the university, and teach predominantly business courses.
2.In North America a business school is often understood to be a university graduate school which offers a Master of Business Administration or equivalent degree.
3.Also in North America the term "business school" can refer to a different type of institution: a two-year school that grants the Associate's degree in various business subjects. Most of these schools began as secretarial schools, then expanded into accounting or bookkeeping and similar subjects. They are typically operated as businesses, rather than as institutions of higher learning.
4.In Europe and Asia, some universities teach only business

Notable business school firsts

.1759 - The Aula do Comércio in Lisbon was the world's first institution to specialise in the teaching of commerce. It provided a model for development of similar government-sponsored schools across Europe, and closed in 1844, when it merged with Instituto Industrial de Lisboa to become Instituto Industrial e Comercial de Lisboa. [citation needed] After the division of that organization, and several changes of names, it became the Instituto Superior de Economia e Gestão of the Technical University of Lisbon
.1819 - The Ecole Supérieure de Commerce of Paris (now ESCP Europe) was founded. It is the oldest business school in the world.
.1881 - The Wharton School of the University of Pennsylvania was founded as the first business school within a broader university
.1898 - Handelshochschule Leipzig (aka Leipzig Graduate School of Management), the first business school in Germany, was founded.
.1898 - The University of St. Gallen established, the first university in Switzerland teaching business and economics.
.1898 - The University of Chicago Booth School of Business (then the Graduate School of Business or Chicago GSB) was the first business school to offer a PhD program and an Executive MBA program. It is the first business school to have a Nobel laureate on its faculty: George Stigler won the prize after retiring from the school in 1981. It is also the first business school to have six Nobel laureates on its faculty.
.1898 - The College of Commerce at the University of California, Berkeley, later renamed the Haas School of Business, was founded as the first business school at a public university
.1889 - The predecessor of Manchester Metropolitan University Business School was founded as the first school teaching commerce in the United Kingdom.
.1900 - The Tuck School of Business at Dartmouth College was founded as the first graduate school of business in the US, offering the first master's degree in business administration, titled the "Master of Commercial Science"
.1902 - The Birmingham Business School was set up as the then University of Birmingham's School of Commerce, the first Business School in the UK.
.1907 - The École des Hautes Études Commerciales de Montréal (HEC Montréal) was founded as the first business school in Canada
.1909 - Stockholm School of Economics or Handelshögskolan i Stockholm was founded as the first institution dedicated to business and economics in Sweden.
.1910 - Harvard Business School was the first business school to offer a degree called the "MBA"
.1911 - Helsinki School of Economics or Helsingin kauppakorkeakoulu was founded as the first Finnish-language institution dedicated to business and economics in Finland.
.1918 - The University of Edinburgh set up the first faculty for the study of business and commerce in Scotland
.1921 - Nanjing University (then named National Southeastern University and later renamed National Central University and Nanjing University) moved the Faculty of Business originated in

1917 from Nanjing to Shanghai to establish the university business school, which was the first professional Chinese university business school. Later the school became Shanghai University of Finance and Economics, and Nanjing University Business School was refounded, as well as the School of Management at NCU in Taiwan.
.1936 - The Norwegian School of Economics and Business Administration (NHH) was established as Norway's first business school.
.1941 - ESAN - Escola Superior de Administração e Negócios the first business school in Brazil was founded.
.1946 - The Thunderbird School of Global Management, then called the American Institute for Foreign Trade, was the first graduate management school focused exclusively on global business.

.1948 - The University of Western Ontario was the first University outside the United States to offer an MBA
.1953 - The first Latin American school of business, Adolfo Ibáñez (see Adolfo Ibáñez University), is created in Valparaíso, Chile .

.1955 - IBA was established by the Wharton School of the University of Pennsylvania. The Wharton School provided professors and assistance, to what would become the finest and most prestigious business school in Pakistan.
.1957 - INSEAD, near Paris, France, became the first European institution to offer an MBA program.
.1958 - Fundação Getúlio Vargas was the first business school founded in Latin America to offer an MBA-type qualification
.1964 - National Chengchi University offered the first Chinese MBA program.

.1964 - INCAE Business School or Instituto Centroamericano de Administración de Empresas was founded by Harvard Business School
.1966 - The National Institute of Development Administration or NIDA was the first graduate school that offer an MBA program in Thailand
.1973 - The École des Affaires de Paris (EAP) (now ESCP-EAP) was the first business school with campuses in three countries
.1991 - The IEDC-Bled School of Management was the first business school to offer an MBA program in Eastern Europe.
.1992 - The Thunderbird School of Global Management was the first business school to have campuses on three continents.

Business school degrees

.Associate's Degree: AA, AAB, ABA, AS
.Bachelor's Degrees: BBA, BBus, BComm, BSBA, BAcc, BABA, BBS, and BBusSc
.Master's Degrees: MBA, Masters in Business and Management (MBM), MM, MAcc, MMR, MSMR, MPA, MSM, MHA, MSF, MSc, MST, Masters in Management Studies (MMS),Executive Masters in Business Administration(EMBA) and MComm. At Oxford and Cambridge business schools an MPhil, or Master of Philosophy, is awarded in place of an MA or MSc.
.Post Graduate: Post Graduate Diploma in Management (PGDM), Post Graduate Diploma in Business Management (PGDBM), Post Graduate Program (PGP) in Business Management, Post Graduate Program (PGP) in Management
.Doctoral Degrees: Ph.D., DBA, DHA, DM, Doctor of Commerce (DCOM), FPM, PhD in Management or Business Doctorate (Doctor of Philosophy)

Doctor of Professional Studies (DPS)

Business school use of case studies

Some business schools center their teaching around the use of case studies (i.e. the case method). Case studies have been used in graduate and undergraduate business education for nearly one hundred years. Business cases are historical descriptions of actual business situations. Typically, information is presented about a business firm's products, markets, competition, financial structure, sales volumes, management, employees and other factors affecting the firm's success. The length of a business case study may range from two or three pages to 30 pages, or more.

Business schools often obtain case studies published by Harvard Business School, the Darden School at the University of Virginia, INSEAD, other academic institutions, or case clearing houses (such as ECCH). Harvard's most popular case studies include Lincoln Electric Co. and Google, Inc..

Students are expected to scrutinize the case study and prepare to discuss strategies and tactics that the firm should employ in the future. Three different methods have been used in business case teaching:

1.Prepared case-specific questions to be answered by the student. This is used with short cases intended for undergraduate students. The underlying concept is that such students need specific guidance to be able to analyze case studies.
2.Problem-solving analysis. This second method, initiated by the Harvard Business School is by far the most widely used method in MBA and executive development programs. The underlying concept is that with enough practice (hundreds of case analyses) students develop intuitive skills for analyzing and resolving complex business situations. Click here for more information on the HBS case method. Successful implementation of this method depends heavily on the skills of the discussion leader.
3.A generally applicable strategic planning approach. This third method does not require students to analyze hundreds of cases. A strategic planning model is provided and students are instructed to apply the steps of the model to six to a dozen cases during a semester. This is sufficient to develop their ability to analyze a complex situation, generate a variety of possible strategies and to select the best ones. In effect, students learn a generally applicable approach to analyzing cases studies and real situations. This approach does not make any extraordinary demands on the artistic and dramatic talents of the teacher. Consequently most professors are capable of supervising application of this method.

History of business cases

When Harvard Business School was founded, the faculty realized that there were no textbooks suitable to a graduate program in business. Their first solution to this problem was to interview leading practitioners of business and to write detailed accounts of what these managers were doing. Of course the professors could not present these cases as practices to be emulated because there were no criteria available for determining what would succeed and what would not succeed. So the professors instructed their students to read the cases and to come to class prepared to discuss the cases and to offer recommendations for appropriate courses of action. Basically that is the model still being used. See a critique of this approach.

Other approaches to business school

In contrast to the case method some schools use a skills-based approach in teaching business. This approach emphasizes quantitative methods, in particular operations research, management information systems, statistics, organizational behavior, modeling and simulation, and decision science. The goal is to provide students a set of tools that will prepare them to tackle and solve problems.

Another important approach used in business school is the use of Business simulation games that are used in different disciplines such as business, economics, management, etc.

There are also several business school that still rely on the lecture method to give students a basic business education. Lectures are generally given from the professor's point of view, and rarely require interaction from the students unless notetaking is required.

Global Master of Business Administration ranking

Each year, well-known business publications such as Business Week, The Economist , US News & World Report, Fortune, Financial Times, and the Wall Street Journal publish rankings of selected MBA programs that, while controversial in their methodology, nevertheless can directly influence the prestige of schools that achieve high scores.

Operational areas of financial ethics

In the sections devoted to ‘Financial Ethics’ in ‘Business Ethics’ text books ethics of financial markets, financial services and financial management are discussed Fairness in trading practices, trading conditions, financial contracting, sales practices, consultancy services, tax payments, internal audit, external audit are discussed in them.

Creative accounting, earnings management, misleading financial analysis.
Insider trading, securities fraud, bucket shops, forex scams: concerns (criminal) manipulation of the financial markets.
Executive compensation: concerns excessive payments made to corporate CEO's and top management.
Bribery, kickbacks, facilitation payments: while these may be in the (short-term) interests of the company and its shareholders, these practices may be anti-competitive or offend against the values of society.

Ethics of human resource management

‘Human resource management’ occupies the sphere of activity of recruitment, selection, orientation, performance appraisal, training and development, industrial relations and health and safety issues where ethics really matters. The field since operate surrounded by market interests that commodify and instrumentalize everything for the sake of profit claimed in the name of shareholders, it should be predictable that there will be contesting claims of HR ethics . Predictably, ethics of human resource management is a contested terrain like other sub-fields of business ethics. Business Ethicists differ in their orientation towards labour ethics. One group of ethicists influenced by the logic of neoliberalism propose that there can be no ethics beyond utilizing human resources towards earning higher profits for the shareholders . The neoliberal orientation is challenged by the argument that labour well being is not second to the goal of shareholder profiteering. Some others look at human resources management ethics as a discourse towards egalitarian workplace and dignity of labour.

The Discussions on ethical issues that may arise in the employment relationship, including the ethics of discrimination, and employees’ rights and duties are commonly seen in the business ethics texts While some argue that there are certain inalienable rights of workplace such as a right to work, a right to privacy, a right to be paid in accordance with comparable worth, a right not to be the victim of discrimination, others claim that these rights are negotiable. Ethical discourse in HRM often reduced the ethical behavior of firms as if they were charity from the firms rather than rights of employees . Except in the occupations, where market conditions overwhelmingly favour employees, employees are treated disposable and expendable and thus they are defenselessly cornered to extreme vulnerability The expendability of employees, however, is justified in the the texts of ‘business morality’ on the ground the ethical position against such an expendability should be sacrificed for ‘greater merit in a free market system’(Machan, 2007: 68). Further, it is argued since because ‘both employees and employers do in fact possess economic power’ in the free market, it would be unethical if governments or labour unions ‘impose employment terms on the labor relationship’ (Machan, 2007). There are discussions of ethics in employment management individual practices, issues like policies and practices of human resource management, the roles of human resource (HR) practitioners, the decline of trade unionism, issues of globalizing the labour etc., in the recent HRM literature, though they do not occupy the central stage in the HR academics. It is observed that with the decline of labour unions world over, employees are potentially more vulnerable to opportunistic and unethical behaviorIt is criticized that HRM has become a strategic arm of shareholder profiteering through making workers into ‘willing slaves’ . A well cited article points out that there are ‘soft’ and a ‘hard’ versions of HRMs, where in the soft-approach regard employees as a source of creative energy and participants in workplace decision making and hard version is more explicitly focused on organizational rationality, control, and profitability.. In response, it is argued that the stereotypes of hard and soft HRM are both inimical to ethics because they instrumentally attend to the profit motive without giving enough consideration to other morally relevant concerns such as social justice and human wellbeing . However, there are studies indicating, long term sustainable success of organizations can be ensured only with humanely treated satisfied workforce

Market, obviously, is not inherently ethical institution that could be lead by the mythical ‘invisible hand’ alone; neither, it can be alluded that market is inherently unethical. Also, ethics is not something that could be achieved through establishment of procedures, drawing codes of ethics, or enactment of law or any other heteronomous means, though their necessity could remain unquestioned . However, though market need not be the cause of moral or ethical hazards it may serve an occasion for such hazards. The moral hazards of HRM would be on increase so much as human relations and the resources embedded within humans are treated merely as commodities .

Discrimination issues include discrimination on the bases of age (ageism), gender, race, religion, disabilities, weight and attractiveness. See also: affirmative action, sexual harassment.
Issues arising from the traditional view of relationships between employers and employees, also known as At-will employment.
Issues surrounding the representation of employees and the democratization of the workplace: union busting, strike breaking.
Issues affecting the privacy of the employee: workplace surveillance, drug testing. See also: privacy.
Issues affecting the privacy of the employer: whistle-blowing.
Issues relating to the fairness of the employment contract and the balance of power between employer and employee: slavery, indentured servitude, employment law.
Occupational safety and health.

All of the above are also related to the hiring and firing of employees. An employee or future employee can not be hired or fired based on race, age, gender, religion, or any other disciminatory act.

Ethics of sales and marketing

Marketing Ethics is a subset of business ethics. Ethics in marketing deals with the principles, values and/or ideals by which marketers (and marketing institutions) ought to act . Marketing ethics too, like its parent discipline, is a contested terrain. Discussions of marketing ethics are focused around two major concerns: one is the concern from political philosophy and the other is from the transaction-focused business practice . On the one side, following ideologists like Milton Friedman and Ayn Rand, it is argued that the only ethics in marketing is maximizing profit for the shareholder. On the other side it is argued that market is responsible to the consumers and other proximate as well as remote stakeholders as much as, if not less, it is responsible to its shareholders. The ethical prudence of targeting vulnerable sections for consumption of redundant or dangerous products/services, being transparent about the source of labour (child labour, sweatshop labour, fair labour remuneration), declaration regarding fair treatment and fair pay to the employees , being fair and transparent about the environmental risks, the ethical issues of product or service transparency (being transparent about the ingredients used in the product/service – use of genetically modified organisms, content, ‘source code’ in the case of software), appropriate labelling, the ethics of declaration of the risks in using the product/service (health risks, financial risks, security risks etc.), product/service safety and liability, respect for stakeholder privacy and autonomy, the issues of outsmarting rival business through unethical business tactics etc., advertising truthfulness and honesty, fairness in pricing & distribution, and forthrightness in selling etc., are few among the issues debated among people concerned about ethics of marketing practice.
Ethical discussion in marketing is still in its nascent stage. Marketing Ethics came of age only as late as 1990s . As it is the case with business ethics in general, marketing ethics too is approached from ethical perspectives of virtue, deontology, consequentialism, pragmatism and also from relativist positions. However, there are extremely few articles published from the perspective of 20th or 21st century philosophy of ethics

One impediment in defining marketing ethics is the difficulty of pointing out the agency responsible for the practice of ethics. Competition, rivalry among the firms, lack of autonomy of the persons at different levels of marketing hierarchy, nature of the products marketed, nature of the persons to whom products are marketed, the profit margin claimed, and everything relating the marketing field does make the agency of a marketing person just a cog in the wheel. Deprived of agency, the hierarchy of marketing hardly lets one with an opportunity to autonomously decide to be ethical. Without one having agency, one is deprived of the ethical choices.

Marketing ethics is not restricted to the field of marketing alone, rather its influence spread across all fields of life and most importantly construction of ‘socially salient identities for people’ and “affect some people’s morally significant perceptions of and interactions with other people, and if they can contribute to those perceptions or interactions going seriously wrong, these activities have bearing on fundamental ethical questions” . Marketing, especially its visual communication, it is observed, serve as an instrument of epistemic closure restricting worldviews within stereotypes of gender, class and race relationships.

1.Pricing: price fixing, price discrimination, price skimming.
2.Anti-competitive practices: these include but go beyond pricing tactics to cover issues such as manipulation of loyalty and supply chains. See: anti-competitive practices, antitrust law.
3.Specific marketing strategies: greenwash, bait and switch, shill, viral marketing, spam (electronic), pyramid scheme, planned obsolescence.
4.Content of advertisements: attack ads, subliminal messages, sex in advertising, products regarded as immoral or harmful
5.Children and marketing: marketing in schools.
6.Black markets, grey markets.

Ethics of production
This area of business ethics usually deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.

Defective, addictive and inherently dangerous products and services (e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).
Ethical relations between the company and the environment: pollution, environmental ethics, carbon emissions trading
Ethical problems arising out of new technologies: genetically modified food, mobile phone radiation and health.
Product testing ethics: animal rights and animal testing, use of economically disadvantaged groups (such as students) as test objects.

Business ethics

Business ethics (also known as Corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and business organizations as a whole. Applied ethics is a field of ethics that deals with ethical questions in many fields such as medical, technical, legal and business ethics.

Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).

Discussion on ethics in business is necessary because business can become unethical, and there are plenty of evidences as in today on unethical corporate practices. Even Adam Smith opined that ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices’. Business does not operate in a vacuum. Firms and corporations operate in the social and natural environment. By virtue of existing in the social and natural environment, business is duty bound to be accountable to the natural and social environment in which it survives Irrespective of the demands and pressures upon it, business by virtue of its existence is bound to be ethical [Is this a fact or an opinion?], for at least two reasons: one, because whatever the business does affects its stakeholders and two, because every juncture of action has trajectories of ethical as well as unethical paths wherein the existence of the business is justified by ethical alternatives it responsibly chooses. One of the conditions that brought business ethics to the forefront is the demise of small scale, high trust and face-to-face enterprises and emergence of huge multinational corporate structures capable of drastically affecting everyday lives of the masses.


Business ethics being part of the larger social ethics, always been affected by the ethics of the epoch. At different epochs of the world, people, especially the elites of the world, were blind to ethics and morality which were obviously unethical to the succeeding epoch. History of business, thus, is tainted by and through the history of slavery history of colonialism and later by the history of cold war. The current discourse of business ethics is the ethical discourse of the post-colonialism and post-world wars. The need for business ethics in the current epoch had begun gaining attention since 1970s. Historically, firms started highlighting their ethical stature since the late 1980s and early 1990s, as the world witnessed serious economic and natural disasters because of unethical business practices. The Bhopal disaster and the fall of Enron are instances of the major disasters triggered by bad corporate ethics. It should be noted that the idea of business ethics caught the attention of academics, media and business firms by the end of the overt Cold War. Cold Wars, seen through pages of history were fought through and fought for American business firms abroad Ideologically, promotion of firms owned by American nationals were presented as if it were freedom and the local resistance against the excess of American firms were labeled communist upraising sponsored by the Soviet Block .Further, even legitimate criticism against unethical practice of the firms was presented as if it were infringement into the 'freedom' of the entrepreneurs by activists backed by communist totalitarians This scuttled the discourse of business ethics both at media and academics. Overt violence by business firms has decreased to a great extent in the democratic and media affluent world of the day, though it has not ceased to exist. The war in Iraq is one of the recent examples of overt violence by the liberal western states on the behalf of oil business interests

Overview of issues

General business ethics

This part of business ethics overlaps with the philosophy of business, one of the aims of which is to determine the fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it should be seen as unethical for a company to consider the interests and rights of anyone else. Corporate social responsibility or CSR: an umbrella term under which the ethical rights and duties existing between companies and society is debated.
Issues regarding the moral rights and duties between a company and its shareholders: fiduciary responsibility, stakeholder concept v. shareholder concept.
Ethical issues concerning relations between different companies: e.g. hostile take-overs, industrial espionage.
Leadership issues: corporate governance; Corporate Social Entrepreneurship
Political contributions made by corporations.
Law reform, such as the ethical debate over introducing a crime of corporate manslaughter.
The misuse of corporate ethics policies as marketing instruments

Ethics of finance

Fundamentally finance is a social science discipline. The discipline shares its border with behavioural science, sociology , economics, accounting and management. Finance being a discipline concerned technical issues such as the optimal mix of debt and equity financing, dividend policy, and the evaluation of alternative investment projects, and more recently the valuation of options, futures, swaps, and other derivative securities, portfolio diversification etc., often it is mistaken to be a discipline free from ethical burdens. However frequent economic meltdowns that could not be explained by theories of business cycles alone have brought ethics of finance to the forefront . Finance ethics is overlooked for another reason: issues in finance are often addressed as matters of law rather than ethics. Looked closer into the literature concerning finance ethics one can be convinced that as it is the case with other operational areas of business, the ethics in finance too is vehemently disputed

Ethics of the finance paradigm

Conventionally economics is seen as a moral science and philosophy directed at a shared ‘good life’. which Adam Smith characterized in terms of a set of external material goods and internal intellectual and moral excellences of character. Smith in his Wealth of the Nations commented, “‘All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind” However, a section of economists influenced by the ideology of neoliberalism, interpreted the objective of economics to be maximization of financial growth through accelerated consumption and production of goods and services Under the influence of the neoliberal ideology, business finance which was a component of economics is promoted to constitute the core of the neoliberal economics. Proponents of the ideology hold that financial flow, if redeemed from the shackles of ‘financial repressions,’ it can be put into service of the impoverished nations. It is held that the liberation financial systems would ensure economic growth through competitive capital market system ensuring promotion of high levels of savings, investment, employment, productivity, foreign capital inflows and thereby welfare along with containing corruption. In other words, it was recommended that governments of the impoverished nations should open up their financial systems to global market with the least regulation over the flow of capital. The recommendations however met with serious criticisms from various schools of ethical philosophy. For the pragmatically oriented ethicists, blind submission to the a priori claims, such as the claim of ‘invisible hand’ which are merely ideological, could be ethically counterproductive . The welfare claim of the Laissez-faire finance is disputed because, welfare would be overridden given a conflict with . Further, history of finance does not suggest that firms always maintain principles of honesty and fairness under unregulated environments. The prudence and ethics of recommendations to the countries which were impoverished by the ravages of centuries of colonial exploitation, subsequent cold wars and subjection to imperial hegemony to unconditionally open up their economies to transnational finance corporations is fiercely contested by ethicists from various quarter. Further, the claim that deregulation and the opening up economies bringing down corruption too is contested.

The firm, within the finance paradigm, is seen as a complex network of contractual relations, mostly implicit, between various interest groups. “Within this finance paradigm," Dobson observes, "a rational agent is simply one who pursues personal material advantage ad infinitum. In essence, to be rational in finance is to be individualistic, materialistic, and competitive. Business is a game played by individuals, as with all games the object is to win, and winning is measured in terms solely of material wealth. Within the discipline this rationality concept is never questioned, and has indeed become the theory-of-the-firm's sine qua non”. Ethics of finance is narrowly reduced to the mathematical function of shareholder wealth maximization. Such simplifying assumptions are necessary in the field of finance for the construction of mathematically robust models. Such a mathematical chimera, it is observed, lets the experts in the field of finance into the vice of greed justification. However, the signaling theory and agency theory within the domain of finance reveal clearly the normative undesirability of wealth maximization . Ethics seen from the stakeholder perspective is the privilege of the immediate and remote stakeholders as much as it is the obligation of the firms towards them

Types of retail banks

National Bank of the Republic, Salt Lake City 1908
National Copper Bank, Salt Lake City 1911Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.
Postal savings banks: savings banks associated with national postal systems.
Private banks: banks that manage the assets of high net worth individuals.
Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.
Building societies and Landesbanks: institutions that conduct retail banking.
Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.

Types of investment banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.

Both combined

Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance— hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.
Other types of banks

Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis.
Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers.

United States

In the United States, the banking industry is a highly regulated industry with detailed and focused regulators. All banks with FDIC-insured deposits have the FDIC as a regulator; however, for examinations,[clarification needed] the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the Currency (“OCC”) is the primary federal regulator for national banks; and the Office of Thrift Supervision, or OTS, is the primary federal regulator for thrifts. State non-member banks are examined by the state agencies as well as the FDIC. National banks have one primary regulator—the OCC.

Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere.

The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although the FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing.

In addition to changing regulations, changes in the industry have led to consolidations within the Federal Reserve, FDIC, OTS and OCC. Offices have been closed, supervisory regions have been merged, staff levels have been reduced and budgets have been cut. The remaining regulators face an increased burden with increased workload and more banks per regulator. While banks struggle to keep up with the changes in the regulatory environment, regulators struggle to manage their workload and effectively regulate their banks. The impact of these changes is that banks are receiving less hands-on assessment by the regulators, less time spent with each institution, and the potential for more problems slipping through the cracks, potentially resulting in an overall increase in bank failures across the United States.

The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the recent economic market. A rising interest rate environment may seem to help financial institutions, but the effect of the changes on consumers and businesses is not predictable and the challenge remains for banks to grow and effectively manage the spread to generate a return to their shareholders.

The management of the banks’ asset portfolios also remains a challenge in today’s economic environment. Loans are a bank’s primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core. While always an issue for banks, declining asset quality has become a big problem for financial institutions. There are several reasons for this, one of which is the lax attitude some banks have adopted because of the years of “good times.” The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in some cases depth of management. Problems are more likely to go undetected, resulting in a significant impact on the bank when they are recognized. In addition, banks, like any business, struggle to cut costs and have consequently eliminated certain expenses, such as adequate employee training programs.

Banks also face a host of other challenges such as aging ownership groups. Across the country, many banks’ management teams and board of directors are aging. Banks also face ongoing pressure by shareholders, both public and private, to achieve earnings and growth projections. Regulators place added pressure on banks to manage the various categories of risk. Banking is also an extremely competitive industry. Competing in the financial services industry has become tougher with the entrance of such players as insurance agencies, credit unions, check cashing services, credit card companies, etc.

As a reaction, banks have developed their activities in financial instruments, through financial market operations such as brokerage and trading and become big players in such activities.

Accounting for bank accounts

Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit a credit account to increase its balance, and you debit a credit account to decrease its balance.[11]

This also means you debit your savings account every time you deposit money into it (and the account is normally in deficit), while you credit your credit card account every time you spend money from it (and the account is normally in credit).

However, if you read your bank statement, it will say the opposite—that you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance.

The reason for this is that the bank, and not you, has produced the bank statement. Your savings might be your assets, but the bank's liability, so they are credit accounts (which should have a positive balance). Conversely, your loans are your liabilities but the bank's assets, so they are debit accounts (which should also have a positive balance).

Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holder—which is traditionally what most people are used to seeing.

Broker deposits

One source of deposits for banks is brokers who deposit large sums of money on the behalf of investors. This money will generally go to the banks which offer the most favorable terms, often better than those offered local depositors. It is possible for a bank to be engaged in business with no local deposits at all, all funds being brokered deposits. Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a difficult and sometimes risky position, as the funds must be lend or invested in a way that yields a return sufficient to pay the high interest being paid on the brokered deposits. This may result in risky decisions and even in eventual failure of the bank. Banks which failed during 2008 and 2009 in the United States during the global financial crisis had, on average, four times more brokered deposits as a percent of their deposits than the average bank. Such deposits, combined with risky real estate investments, factored into the Savings and loan crisis of the 1980s. Regulation of brokered deposits is opposed by banks on the grounds that the practice can be a source of external funding to growing communities with insufficient local deposits

Monday, June 21, 2010

Risk and capital

Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Some of the main risks faced by banks include:

Credit risk: risk of loss arising from a borrower who does not make payments as promised.
Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit).
Operational risk: risk arising from execution of a company's business functions.
Market risk: risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors.
The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their capital. The categorization of assets and capital is highly standardized so that it can be risk weighted.

Banks in the economy

The economic functions of banks include:

1.issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash.
2.netting and settlement of payments – banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them.
3.credit intermediation – banks borrow and lend back-to-back on their own account as middle men.
4.credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.
5.maturity transformation – banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets).

Bank crisis

Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals beyond available funds), credit risk (the chance that those who owe money to the bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans).

Banking crises have developed many times throughout history, when one or more risks have materialized for a banking sector as a whole. Prominent examples include the bank run that occurred during the Great Depression, the U.S. Savings and Loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the subprime mortgage crisis in the 2000s.

Size of global banking industry

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial year to a record $96.4 trillion while profits declined by 85% to $115bn. Growth in assets in adverse market conditions was largely a result of recapitalisation. EU banks held the largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment banking totalled $66.3bn in 2009, up 12% on the previous year. [10]

The United States has the most banks in the world in terms of institutions (7,085 at the end of 2008) and possibly branches (82,000).[citation needed] This is an indicator of the geography and regulatory structure of the USA, resulting in a large number of small to medium-sized institutions in its banking system. As of Nov 2009, China's top 4 banks have in excess of 67,000 branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches—more than double the 15,000 branches in the UK.[10]


Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate.

Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order—although money lending, by itself, is generally not included in the definition.

Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licences banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank.

Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the customer—defined as any entity for which the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

1.The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank.
2.The bank agrees to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.
3.The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.
4.The bank agrees to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.
5.The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.
6.The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.
7.The bank must not disclose details of transactions through the customer's account—unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it.
8.The bank must not close a customer's account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship.

Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements, and therefore regulated under separate rules.

The requirements for the issue of a bank licence vary between jurisdictions but typically include:

1.Minimum capital
2.Minimum capital ratio
3.'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers
4.Approval of the bank's business plan as being sufficiently prudent and plausible.

Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations.


A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses.

Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards are called Basel II. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. In Japan, banks are usually the nexus of a cross-share holding entity known as the keiretsu.

The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472.[1]


Banks date back to ancient times. During the 3rd century AD, banks in Persia and other territories in the Persian Sassanid Empire issued letters of credit known as Ṣakks. Muslim traders are known to have used the cheque or ṣakk system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate. In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad,[2] a tradition that was significantly strengthened in the 13th and 14th centuries, during the Mongol Empire.[citation needed] Fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent. The earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy.[3] Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe[4]. Perhaps the most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397[5].

Origin of the word

The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Jewish Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth.[6]

The earliest evidence of money-changing activity is depicted on a silver drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350–325 BC, presented in the British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a bank.


The definition of a bank varies from country to country. See the relevant country page (below) for more information.

Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as:[7]

conducting current accounts for his customers
paying cheques drawn on him, and
collecting cheques for his customers.
In most English common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including cheques, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is organised or regulated.

The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions:

"banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).
"banking business" means the business of either or both of the following:
1.receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period;
2.paying or collecting cheques drawn by or paid in by customers[8]
Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.[9]


Standard activities

Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.

Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.

Wider commercial role

The commercial role of banks is not limited to banking, and includes:

issue of banknotes (promissory notes issued by a banker and payable to bearer on demand)
processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means
issuing bank drafts and bank cheques
accepting money on term deposit
lending money by way of overdraft, installment loan or otherwise
providing documentary and standby letters of credit (trade finance), guarantees, performance bonds, securities underwriting commitments and other forms of off-balance sheet exposures
safekeeping of documents and other items in safe deposit boxes
currency exchange
acting as a 'financial supermarket' for the sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products


Banks offer many different channels to access their banking and other services:

A branch is a retail location
ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller. Some ATMs provide additional services.
Mail: most banks accept check deposits via mail and use mail to communicate to their customers, eg by sending out statements
Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human
Call center
Online banking is a term used for performing transactions, payments etc. over the Internet
Mobile banking is a method of using one's mobile phone to conduct banking transactions
Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a videoconference enabled bank branch.

Business model

A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers. The bank profits from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance.

In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability). Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise been denied credit. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the cards. Helps in making profit and economic development as a whole.

Sunday, June 20, 2010

business regulation

Government regulation

Most legal jurisdictions specify the forms of ownership that a business can take, creating a body of commercial law for each type.


The major factors affecting how a business is organized are usually:

•The size and scope of the business, and its anticipated management and ownership: Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as partnerships or (more commonly) corporations. In addition a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so.
The sector and country. Private profit making businesses are different from government owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways.
•Limited liability. Corporations, limited liability partnerships, and other specific types of business organizations protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected.
•Tax advantages. Different structures are treated differently in tax law, and may have advantages for this reason.
•Disclosure and compliance requirements. Different business structures may be required to make more or less information public (or reported to relevant authorities), and may be bound to comply with different rules and regulations.

Many businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized. Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate "person." This means that unless there is misconduct, the owner's own possessions are strongly protected in law, if the business does not succeed.

Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created, and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located.

A single person who owns and runs a business is commonly known as a sole proprietor, whether he or she owns it directly or through a formally organized entity.

A few relevant factors to consider in deciding how to operate a business include:

1.General partners in a partnership (other than a limited liability partnership), plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business.

2.Generally, corporations are required to pay tax just like "real" people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed.

3.In most countries, there are laws which treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment.
4.To "go public" (sometimes called IPO) -- which basically means to allow a part of the business to be owned by a wider range of investors or the public in general—you must organize a separate entity, which is usually required to comply with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units (sometimes also called shares), and other more exotic entities as well (for example, REITs in the USA, Unit Trusts in the UK). However, you cannot take a general partnership "public."

Commercial law

Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over a very long period of time, it being the case that governing trade and commerce was a strong driving force in the creation of law and courts in Western civilization.

As for other laws that regulate or impact businesses, in many countries it is all but impossible to chronicle them all in a single reference source. There are laws governing treatment of labor and generally relations with employees, safety and protection issues (Health and Safety), anti-discrimination laws (age, gender, disabilities, race, and in some jurisdictions, sexual orientation), minimum wage laws, union laws, workers compensation laws, and annual vacation or working hours time.

In some specialized businesses, there may also be licenses required, either due to special laws that govern entry into certain trades, occupations or professions, which may require special education, or by local governments. Professions that require special licenses range from law and medicine to flying airplanes to selling liquor to radio broadcasting to selling investment securities to selling used cars to roofing. Local jurisdictions may also require special licenses and taxes just to operate a business without regard to the type of business involved.

Some businesses are subject to ongoing special regulation. These industries include, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in unexpected ways.


When businesses need to raise money (called 'capital'), more laws come into play. A highly complex set of laws and regulations govern the offer and sale of investment securities (the means of raising money) in most Western countries. These regulations can require disclosure of a lot of specific financial and other information about the business and give buyers certain remedies. Because "securities" is a very broad term, most investment transactions will be potentially subject to these laws, unless a special exemption is available.

Capital may be raised through private means, by public offer (IPO) on a stock exchange, or in many other ways. Major stock exchanges include the Shanghai Stock Exchange, Singapore Exchange, Hong Kong Stock Exchange, New York Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange (Japan), and so on. Most countries with capital markets have at least one.

Business that have gone "public" are subject to extremely detailed and complicated regulation about their internal governance (such as how executive officers' compensation is determined) and when and how information is disclosed to the public and their shareholders. In the United States, these regulations are primarily implemented and enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies. The regulations are implemented and enforced by the China Securities Regulation Commission (CSRC), in China. In Singapore, the regulation authority is Monetary Authority of Singapore (MAS), and in Hong Kong, it is Securities and Futures Commission (SFC).

As noted at the beginning, it is impossible to enumerate all of the types of laws and regulations that impact on business today. In fact, these laws have become so numerous and complex, that no business lawyer can learn them all, forcing increasing specialization among corporate attorneys. It is not unheard of for teams of 5 to 10 attorneys to be required to handle certain kinds of corporate transactions, due to the sprawling nature of modern regulation. Commercial law spans general corporate law, employment and labor law, healthcare law, securities law, M&A law (who specialize in acquisitions), tax law, ERISA law (ERISA in the United States governs employee benefit plans), food and drug regulatory law, intellectual property law (specializing in copyrights, patents, trademarks and such), telecommunications law, and more.

In Thailand, for example, it is necessary to register a particular amount of capital for each employee, and pay a fee to the government for the amount of capital registered. There is no legal requirement to prove that this capital actually exists, the only requirement is to pay the fee. Overall, processes like this are detrimental to the development and GDP of a country, but often exist in "feudal" developing countries.

Intellectual property

Businesses often have important "intellectual property" that needs protection from competitors for the company to stay profitable. This could require patents or copyrights or preservation of trade secrets. Most businesses have names, logos and similar branding techniques that could benefit from trademarking. Patents and copyrights in the United States are largely governed by federal law, while trade secrets and trademarking are mostly a matter of state law. Because of the nature of intellectual property, a business needs protection in every jurisdiction in which they are concerned about competitors. Many countries are signatories to international treaties concerning intellectual property, and thus companies registered in these countries are subject to national laws bound by these treaties.

Exit plans

Businesses can be bought and sold. Business owners often refer to their plan of disposing of the business as an "exit plan." Common exit plans include IPOs, MBOs and mergers with other businesses. Businesses are rarely liquidated, as it is often very unprofitable to do so.

Saturday, June 19, 2010


•1 Basic forms of ownership
•2 Classifications

•3 Management
3.1 Reforming State Enterprises

Basic forms of ownership
Although forms of business ownership vary by jurisdiction, there are several common forms:

•Sole proprietorship: A sole proprietorship is a business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has personal liability of the debts incurred by the business.
•Partnership: A partnership is a form of business in which two or more people operate for the common goal which is often making profit. In most forms of partnerships, each partner has personal liability of the debts incurred by the business. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships.
Corporation: A corporation is either a limited or unlimited liability entity that has a separate legal personality from its members. A corporation can be organized for-profit or not-for-profit. A corporation is owned by multiple shareholders and is overseen by a board of directors, which hires the business's managerial staff. In addition to privately owned corporate models, there are state-owned corporate models.
•Cooperative: Often referred to as a "co-op", a cooperative is a limited liability entity that can organize for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.
For a country-by-country listing of legally recognized business forms, see Types of business entity.

There are many types of businesses, and because of this, businesses are classified in many ways. One of the most common focuses on the primary profit-generating activities of a business:

•Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals.
•Financial businesses include banks and other companies that generate profit through investment and management of capital.
•Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies.
•Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers.
•Real estate businesses generate profit from the selling, renting, and development of properties, homes, and buildings.
•Retailers and Distributors act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalogue companies are distributors or retailers. See also: Franchising
•Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses.
•Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs
•Utilities produce public services, such as heat, electricity, or sewage treatment, and are usually government chartered.

There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America is generally considered to be the North American Industry Classification System, or NAICS. The equivalent European Union list is the NACE.


The efficient and effective operation of a business, and study of this subject, is called management. The main branches of management are financial management, marketing management, human resource management, strategic management, production management, service management and information technology management

Reforming State Enterprises
In recent decades, assets and enterprises that were run by various states have been modeled after business enterprises. In 2003, the People's Republic of China reformed 80% of its state-owned enterprises and modeled them on a company-type management system.[2] Many state institutions and enterprises in China and Russia have been transformed into joint-stock companies, with part of their shares being listed on public stock markets.

meaning of business

A commercial activity engaged in as a means of livelihood or profit, or an entity which engages in such activities.

A business (company, enterprise or firm) is a legally recognized organization designed to provide goods or services, or both, to consumers, businesses and governmental entities.[1] Businesses are predominant in capitalist economies. Most businesses are privately owned. A business is typically formed to earn profit that will increase the wealth of its owners and grow the business itself. The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk. Notable exceptions include cooperative enterprises and state-owned enterprises. Businesses can also be formed not-for-profit or be state-owned.

The etymology of "business" relates to the state of being busy either as an individual or society as a whole, doing commercially viable and profitable work. The term "business" has at least three usages, depending on the scope — the singular usage (above) to mean a particular company or corporation, the generalized usage to refer to a particular market sector, such as "the music business" and compound forms such as agribusiness, or the broadest meaning to include all activity by the community of suppliers of goods and services. However, the exact definition of business, like much else in the philosophy of business, is a matter of debate and complexity of meanings.

a business entity that consists of General and Limited Partners. The General Partner manages the business and assumes unlimited liability for the organization's legal debts and obligations. Meanwhile, the Limited Partner has no management authority or participation in the business' day-to-day operations, and his or her liability is limited to the amount of investment.

In the past, Limited Partnerships (LPs) were organized primarily for real estate ventures and businesses involved in the oil and gas industry. However, their use has now spread into a host of other business lines, including equipment leasing and movie & theater productions. Since 1974, over $100 billion has been invested in LPs.


Public Limited Partnership:
If a Limited Partnership has registered with the Securities and Exchange Commission (SEC) and trades on an exchange, then it is considered to be "publicly traded."

Unlisted, Non Exchange Traded Limited Partnership:
If a Limited Partnership has filed a registration statement with the Securities and Exchange Commission, currently files periodic reports (such as the 10k, 10q reports), but does not trade on an exchange, then the security is a "Public Reporting" company, rather than a "Publicly Traded" one.

Private Company:
A privately held Limited Partnership is not subject to public disclosure and is not traded on a public market.

If you run a small business, you've got a lot to think
about: Cash flow, competition, customer loyalty...the list goes on and on. And, if you're like most small-business owners, you work a lot longer than a "forty-hour" week. So, you may not have had the time to think about setting up a retirement plan for yourself and any employees you may have. But you should make the time - because a comfortable retirement is worth planning for.

Fortunately, it's a great time for small-business owners to choose a good, cost-efficient retirement plan. In recent years, new tax laws have made it easier for you to pick a plan that can help you save for retirement and, if necessary, attract and retain quality employees

Thursday, June 17, 2010



- an amount of money given to somebody on the condition that it will be paid back later.
- the act of letting somebody use something temporarily.

- to allow somebody to borrow something on the condition that it is returned.

- being lent or borrowed.

- working at a temporary location because additional help or expertise is needed there.

- the act of lending; a grant of the temporary use of something: the loan of a book.
- something lent or furnished on condition of being returned , esp. a sum of money lent at interest: a 1000loan at 10 percent interest.

- loanward

- on loan

- borrowed for temporary use: How many books can i have on loan from the library at home?

- temporarily provided or released by one's regular employer, superior, or owner for use by another. Our best actor is on loan to another movie studio for two films.

- to lend money at interest.

loan or lend?

If you are letting somebody else temporarily use physical property or money of yours, it is quite acceptable, especially in less formal contexts, to use the verb loan, as in I loaned him some lunch money. In more formal settings lend is by far the safer choice: According to the terms of this agreement, we will lend you the stipulated amount of cash. The verb loan can be used only with reference to the temporary lending of physical property or assets. If the context is not literal or physical, lend is the only choice: The evidence lends credence to the witness's previous testimony.The subtle use of strings lends fluidity to the composition.

unsecured loan

An unsecured loan is a loan that is not backed by collateral. Also known as a signature loan or personal loan.
Unsecured loans are based solely upon the borrower's credit rating. As a result, they are often much more difficult to get than a secured loan, which also factors in the borrower's income. An unsecured loan is considered much cheaper and carries less risk to the borrower.[citation needed] However, when an unsecured loan is granted, it does not necessarily have to be based on a credit score. For example, if your friend lends you money without any collateral, meaning something of worth that can be repossessed if the loan isn't repaid, then your credit score has zero to do with it, but rather the value of your friendship is at stake. Therefore the real meaning of an unsecured loan is that it is not backed by any object of value and is lent to you based on your good name. For financial institutional purposes, they may want to look at your credit score because they are not your friend and it is strictly a business transaction, therefore your good name may be associated with your historical payment history on prior debt, reflecting in your credit score.

Types of unsecured loans

There are three types of unsecured loans.

- First there is a personal unsecured loan, meaning a loan that you individually are responsible for the repayment of.

- Second is an unsecured business loan which leaves the business responsible for the repayment.

- Finally there is an unsecured business loan with a personal guarantee. With the latter, although the borrower is the business, you as an individual will be the payer of last resort if the business defaults on the loan

Lending decision criteria

Since unsecured loans are not secured against property or any asset, it is more difficult for a lender to get their money back if the borrower does not or cannot repay the loan.
Because of this increased 'risk' (compared to secured loans) unsecured lenders tend to have stricter underwriting rules. In particular, lenders will look at the potential borrower's credit history and how they have conducted their previous and current credit or loan accounts.
In summary the lender has to decide, based on their borrower's credit history, how likely are they to repay the loan. If the risk is too high, the borrower will be declined for the loan. If the risk is acceptable, then the lender will (subject to other minimum requirements) make a loan offer.

Rate determination

Assuming a loan offer is made, the actual APR will normally depend on two things, the loan amount and that level of risk. Generally speaking, the higher the loan amount the lower the APR will be. In terms of the level of risk, the higher the risk the higher the APR lenders will charge - this is known in the loan industry as rate-for-risk.

Wednesday, June 16, 2010

Finance: The management or mismanagement of money, banking, investments and credit.

Ten Things You Might Not Have Known About Social Security - added:
February 20, 2006 - author: Ken Morris - Social Security is a lot like the ozone layer--we all know it’s there now and we count on it being there in the future. Yet most people don’t know much more about it than that. Here’s a short list of interesting facts about Social Security. (1) Social Security benefits.
Beware of Debt Consolidation Scams -
date: September 8, 2005 - author: Schaldening Hilfarde - People need help with the their debt at some point in their life. Debt Consolidation helps you at times when your debt becomes too heavy for you manage. Debt Consolidation, literally means, putting all debts together into a single monthly payment. Very often you have to pay .

Top five saving money myths- added: February 18, 2006 - author: Martin Lukac - We all like to think that we are doing the best we can when it comes to our finances. We think we are saving money, but we've never actually sat down and done the math. You could be surprised if you did. Here are the top five money saving myths that we fall .
Say "Bah, Humbug!" To Holiday Debt: Avoid the "Holiday Hangover"
- date: November 20, 2005 - author: Mike Peterson - Ah, the holiday season! Turkey and dressing, pumpkin pie, office parties, jingle bells, and lots and lots of eggnog make. the season a delight. But all fun and reindeer games aside, you have to be careful to make sure you don't wind up as poor as Tiny Tim! .
Dividend Reinvestment - added: February 24, 2006 - author: Larry Potter - Our readers know that we have little faith in the “buy and hold” approach to stock-buying. Wall Street, on the other hand, wants investors to “stay the course” and stick with their stock positions through thick and thin. We would rather avoid the sleepless nights of the thin times like 2000-

Credit Cards, How to Avoid Overspending With Them - added: February 19, 2006 - author: Bruce Walls - Let's accept the fact that shopping is a pleasure for most people and a way of life for some. The presence of credit cards makes it a whole lot easier but for some people it is the start of a living hell once they become snowed under with debt and repayments. If you are not in this click here for full text.
Taking Control of your Finances -
added: February 20, 2006 - author: Debra Lohrere - To find money to invest for your future, you need to make sure that your outgoing expenses are less than the income that you are receiving. You need to develop an excess that you can have free to invest. Now before you start to think….”well I don’t have any excess left…if I was earning more money.
Clear-A-Debt: 12 Myths about Bankruptcy -
added: February 19, 2006 - author: Jean-Francois Fritsch - Like most big, bad scary things, bankruptcy has a reputation based on a few tidbits of truth and lots of embellishment. And like most creepy crawlies, it's not nearly as frightening once you know the truth.With a mind toward declawing the monster, here are a dozen.
Which Low Interest Credit Card is Right For Me? -
added: February 19, 2006 - author: Samuel Pety - The best low interest credit card is one that charges a low interest rate and does not have any hidden costs. Very often, card users tend to be indiscriminate with their cards during the introductory period and are in for a shock when the rates jump at the end of the period.
Retire Early With Financial Planning Dos And Don'ts - added: February 20, 2006 - author: John Morris - It is a well known fact that nothing is permanent in this world. Everything is ephemeral. That is why it is always best to have backups, especially financial ones, in case things go out of hand. Hence, a good financial planning for your retirement is the most feasible idea.