[USMA:33387] RE: A kilo of Socialism

[Gavin Young - Renewable Electricity Solutions]

I partially disagree with your comment of "There is no legal requirement that public companies "constantly increase profits", because when those companies start loosing money, they receive shareholder class action lawsuits. Also I did not say that companies must constantly increase profits, but that they must try to do so. The IRS also is skeptical of sole-proprietorships (and perhaps some corporations) which continually have losses.   I intentionally left out the privately-held for-profit companies because they don't have to respond to the pressures of thousands of short-term minded shareholders (including many day traders). They also generally don't have the size and thus power of the publically traded corporations.   I agree with you when you say "You, or any one else, can go start such a company tomorrow -- there is absolutely NO barrier to you doing so. Structure it as a sole-proprietorship, or a partnership, or an LLC, or an S-corp, or even a C-corp.", for in fact I have such a sole-proprietorship (Renewable Electricity Solutions) and I encourage others to start such enterprises. However under the current system, a business needs to become a publically traded corporation (unless the owners are extremely rich) in order to raise the millions (and often billions) of dollars needed to produce many products at economical prices, such as producting electric cars and even solar electric panels. The rules regarding non-profits, especially 503-C, state that non-profits can only be establised in certain endeavors (such as religion, scientific research, education (including book publishing), museums, and certain other areas deemed primarily engaged in for the public good instead of personal profit). Manufacturing does not appear to be one of those areas. For example Greenpeace has designed prototype fuel efficient cars, but they don't manufacture them - why? Because as a non-profit they can not do so, since manufacturing is considered a for-profit activity.   Likewise manufacturing firms need to make some profit, so they can reinvest the profits to expand their production. I'm not against for-profits making profits which are reinvested in the business, but I feel that many pay to high a salary to their executives (including the stock options). I'm in favor of for-profits being structured in such a manner that they don't have to respond to the constant shareholder focus for short-term profits and for profits at the expense of making products that last longer and use less energy.   ----- Original Message ----- From: Jim Elwell To: U.S. Metric Association Sent: Thursday, 23 June, 2005 15:51 Subject: [USMA:33361] RE: A kilo of Socialism At 23 06 05, 04:16 PM, Gavin Young - Renewable Electricity Solutions wrote: Publically traded for-profit corporations are generally dominated by excessive greed, in part because of the short term focus of many of their shareholders and because they are legally required to try to constantly increase profits. I disagree with both statements here. Sure there are some public companies that are greedy, but the vast majority work hard to provide value while making reasonable profits. The average public company in the USA makes only about 7% after-tax profit, which can hardly be called greedy. There is no legal requirement that public companies "constantly increase profits." Non-profit corporations are legally prevented from manufacturing goods (such as environmentally friendly renewable energy products) and they have the shortcoming of being allowed to pay huge salaries to those running the organization (Goodwill Industries comes to mind). In your discussion you skip over a very large portion of the US economy: privately-held, for-profit companies. In numbers of firms, they represent probably 90% of all active companies in the USA. I don't know what they represent in terms of total GDP, but I'd be surprised if it was under 30% to 40%. What we need are for individuals to voluntarily create entities that have the purpose of manufacturing environmentally friendly products that are very low maintanence and that made to last years, without excessive salaries to those running the organization. We also need legislation that recognizes this type of entity. Such a hybrid entity (a for-semiprofit corporation) could create serious competion for the for-profit corporations because the hybrid entity would better meet the needs of consumers, while doing a better job of conserving the world's resources. Our current capitalist system has too many excesses, however state run entities also have problems. There is no need for any such new entity. You, or any one else, can go start such a company tomorrow -- there is absolutely NO barrier to you doing so. Structure it as a sole-proprietorship, or a partnership, or an LLC, or an S-corp, or even a C-corp. None of these requires large salaries to the owners, none are prohibited from manufacturing. Oh, there is the little problem that the "environmentally friendly products" you suggest may not be anything anyone wants to buy, at least at what you would have to charge. But that is entirely unrelated to the legal structure of the company. Even the non-profit issue is moot: companies that don't make money don't pay corporate income taxes -- they are taxed on their profits, not on their sales. Jim Elwell

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