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Business and Economics

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Business and society course 101

We develop management skills and learn theories to solve problems, that we will have in future. This article contains the main information, that was in the book.

Entrepreneurial perspective

Entrepreneurship is an Essence of business. It comprises 3 things: innovativeness, risk taking and management skills. These qualities can be learnt, or be the talent.
The¬†innovative process is a¬†process of¬†‚Äúcreative destruction‚ÄĚ.

Henry Ford¬†‚Äď not¬†engineer, but¬†innovator.

He made a¬†car ‚ÄúTin Lizzy‚ÄĚ for¬†ordinary people for¬†$295*25 in¬†our currency. He established franchising system of¬†car shops, petrol stations and¬†promoted highway infrastructures.
The average worker worked 8 hours a day and gained $5 for that ($135 now). The work was safe.
Till 1927 he sold 15m cars, but GMC was more innovative and Ford lost in future.

Ray Kroc¬†‚Äď milkshake seller made a¬†franchise out of¬†a¬†small restaurant.

Dick and Mac McDonald offered cheap and tasty burgers.
Kroc just implemented a conveyer system and optimized the kitchen area.
In 2000’s subway outperformed McDonald’s, because they made healthy food.

Dietrich Mateschitz¬†‚Äď brought Red Bull from Thailand to¬†Austria.

He had 49% of company, while Thai partner had 51%.
Red Bull is a¬†sport sponsor and¬†has¬†‚ā¨6b in¬†revenues.
Has hundreds of competitors.

Jobs¬†‚Äď Apple, Pixar, NeXT.

Best advertiser ever.
He was kicked out after successful projects, but¬†became an¬†intrapreneur¬†‚Äď entrepreneur in¬†a¬†company. He made Macintosh, but¬†was fired and¬†opened company NeXT, and¬†also sponsored Pixar¬†‚Äď P.S. he did not¬†invent Pixar, he just was the¬†main investor.
‚ÄúA¬†lot of¬†times, people don‚Äôt know what they want until you show it to¬†them‚ÄĚ

What is in common?

  1. Idea or vision. How to do better?
  2. They weren’t engineers, they just implemented marketing, design...
  3. Work hard for the goal
  4. Content-related goals (e. g. produce cheap and good cars)
  5. Profit is on the second place
  6. Plenty customers who is ready to pay
  7. Risk of failure

Motives

  1. Create something and make an impact
  2. Independence or autonomy
  3. Wealth and fame

Theory of entrepreneurship explains:

  1. How company grows from startup to enterprise
  2. How business helps the national economy
  3. Why businesses fail
  4. How to create a suitable environment for business (VC, Angels etc)
  5. Why after a growth, companies loose their positions

Joseph Schumpeter¬†‚Äď Austrian pioneer of¬†the¬†theory of¬†entrepreneurship

Joseph defines dynamic entrepreneur or pioneer as the engine that is driving a progress. Pioneer develops new processes or products. by doing that, he takes an advantage over competitors or creates a new market (blue ocean). But other companies try to imitate or copy the idea of a pioneer. This is called Dynamic competitive process.
When another pioneer will bring a¬†new idea, the¬†old pioneer‚Äôs idea will be destroyed. It is a¬†Process of¬†creative destruction. The¬†last type is a¬†Recombinant Innovation¬†‚Äď when a¬†new idea is a¬†combination of¬†existing ideas.

Entrepreneurial behavior is often ‚Äúirrational‚ÄĚ, rather intuitive. Pioneer‚Äôs idea is innovative, because it breaks old patterns. To¬†increase chances to¬†be successful, we need a¬†business plan.
Business plan shows us an overall concept of a business idea for investors, shows chances and risks, helps to think about further development of business, identifies threats and protects you from overconfidence and wonders.

Disruptive innovation displaces an existing technology.
Business model innovation does not change a product, but a logic of a business plan.
For example: Netfilx displaced video stores, Uber changed a business model of taxi companies.

Financial perspective

How much money do you earn or¬†loose?¬†‚Äď How to¬†measure financial business performance? What is a¬†value of¬†a¬†company? How to¬†ensure liquidity and¬†solvency? How to¬†decide on¬†investments?

Taxi OPC example

Lena has¬†‚ā¨50k and¬†wants to¬†open a¬†taxi company. She will buy a¬†car for¬†‚ā¨40k and¬†offer newspapers and¬†coffee to¬†customers for¬†free. To¬†be successful, she need data. Lena asks her friend about taxi business. They forecast¬†‚ā¨3000 in¬†receipts from customers¬†‚Äď revenues. Plus, she will spend¬†‚ā¨500 per¬†month for¬†expected ongoing expenditures such as¬†gas, insurance and¬†coffee.
Her operating (net) cash flow is¬†‚ā¨3000 --¬†‚ā¨500 =¬†‚ā¨2500. Inflow -- outflow = flow.

Lena will buy a¬†car, coffee machine and¬†washing machine. These are capital expenditures or¬†CAPEX. CAPEX is a¬†cash flow from investment activities. The¬†difference is that Lena can sell these things, but¬†used gas or¬†eaten chocolate¬†‚Äď not.
She will sell car (and¬†all other CAPEX) for¬†‚ā¨15k and¬†buy a¬†new one for¬†‚ā¨45k in¬†5 years.

let’s count cash inflow and outflow

CAPEX (-40000) + Revenues (3000*12) + expenditures (-500*12) = Overall cash flow (-10000) in the year 1.

Revenues (3000*12) + expenditures (-500*12) = Overall cash flow (30000) in the year 2,3,4.

Sell and buy car (15000-45000) + Revenues (3000*12) + expenditures (-500*12) = Overall cash flow (0) in the year 5.

Looks like she lost money in¬†the¬†1st year. but¬†she did not. These are cash flows, not¬†profits. She will definitely loose money if her operating cash flow was negative. Her cash flow is¬†‚ā¨2500. If her cash flow will be higher, she will afford to¬†hire a¬†driver or¬†buy the¬†second taxi. Don‚Äôt forget about capital expenditures. Cash flow is often negative in¬†the¬†1st year, so Lena has to¬†make a¬†Financing decision, where to¬†get money. If she had not¬†‚ā¨50k, she had to¬†borrow money to¬†buy a¬†car. The¬†cash flow from loans or¬†your savings is called Cash flow from financing activities. We don‚Äôt count them in¬†overall cash flow.

Measure profit: Income Statement (P&L)

The problem of CAPEX in cash flow is that we write CAPEX only in the year, when we bought a car, but we used car equally for 5 years.
Let’s count capital expenditure as resale value of car divided for the time you used a car.
‚ā¨40000 --¬†‚ā¨15000 =¬†‚ā¨25000. This is a¬†resale value of¬†a¬†car. Then we payed¬†‚ā¨5000 per¬†year for¬†a¬†car. This is a¬†Straight line Depreciation.
If we are not¬†sure about selling this car, we can count¬†‚ā¨40000/5years = 8000. This is a¬†normal Depreciation, the¬†5th element of¬†EBITDA.

Expenses are the monetary value of resource consumption during a time period (coffee, newspapers)
Revenues are the monetary value of goods/services that were sold during a time period
Difference between Expenses and Expenditures.

Profit in cost of sales method = revenues -- expenses.
Profit in cost of production method = monetary value of goods/services produced during a time period -- expenses. Here we count all the produced and semi-produced goods, that have been sold and have not been sold yet.

Revenues (36000) -- Ongoing expenses (6000) -- Depreciation (5000) = Profit (25000)
This profit is the same for all the years, because the costs are equally allocated.

But can the cost be really equally allocated? What if i the 2nd year there were in 2 times more rides than in the first? Does not matter, the cost of a car stays the same

Measure profit: Balance Sheet

Corporate net worth (equity) in¬†the¬†beginning of¬†1st year is Taxi (40000) + Bank deposit (10000)¬†‚Äď Liabilities (0) =¬†‚ā¨50000.

Corporate net worth in¬†the¬†end of¬†1st year is Taxi cost (40000)¬†‚Äď Depreciation (5000) + bank deposit(10000 + revenues(36000)¬†‚Äď ongoing expenditures(6000) ) = 35000 + 40000 =¬†‚ā¨75000

Profit = money in¬†the¬†beginning of¬†1st year (75000)¬†‚Äď money in¬†the¬†end of¬†1st year (50000) =¬†‚ā¨25000

scroll right to see other slides

difference between income statement and balance sheet

Income statement helps you to optimize your profits. It shows your transactions, that create resources (products, services) and  transactions, that consume resources (wages, buying materials, selling goods)

balance sheet shows you, which part of the company is yours and which part does the bank or investor have. Creditors use balance sheet to count risks of your failure.

Both of them are important for shareholders and stakeholders (workers, banks, tax authorities)
There are some legal rules, that say how the structure and valuations have to be made.
It helps e. g. investors to compare different firms. Accounting systems and procedures, that help (external) stakeholders are called Financial Accounting.

Accounting systems (Income statement or balance sheet) provide the basis for company-internal analyses such as forecasting profits and making profound business decisions. Accounting systems and procedures, that help managers are called Management Accounting.
The planning and steering of a company by means of (accounting) data and analytics is also referred to as Management Control or Management/Managerial Accounting.

The three main pillars of accounting

Cash Flow
Income Statement P&L
Balance Sheet

Financial ratios

Return On Investments
ROI = Profit / invested capital (with government bonds and other securities).
Capital in denominator should always correspond to the definition of profit in numerator.

**Return On Capital Employed* I*
ROCE = EBIT (Earnings Before Interest and Taxes) / Capital employed
Capital does not contain securities. Profit contains interest

Return On Capital Employed II
Roce = Operating Profit (before or after taxes) / Operating Assets
Operating assets are on the left side of the balance sheet

Return On Equity
ROE = Profit/Equity
Equity is on the right side of the balance sheet

ROI is the most popular, because it can be easily translated into a value driver system

  1. You can use the income statement to see the drivers of profit.
  2. You can use the balance sheet to see the types of capital that comprise overall
    capital (types of assets as well as types of claims).

Profit Margin = Profit / Revenues

Liquidity Ratio = Current Assets / Short-term Liabilities

Gearing (leverage ratio) = Dept (liabilities) / Equity

Corporate Finance and investment Decisions

Investment decisions are decisions about business transactions with an initial cash outflow, in the expectation of future cash inflows that exceed the cash outflow in value.
Lena invests in a taxi (cash outflow) to generate revenues in the future (cash inflow). Investment Theory explores the investment decisions and develops criteria for reasonable decision making.

Financing decisions help us to find money for the investments. Financing starts with a cash inflow followed by cash outflows (interest and repayment). Financing Theories deal with the analyses of financing opportunities and financing structures. Lena’s investments are solely financed with equity. But most entrepreneurial activities cannot be pursued without any use of debt financing.

Financing decisions help corporations got raise equity by issuing shares on the capital market. They can also raise debt capital by issuing bonds (it’s cheaper than lending money in a bank).
Capital Market Theory is based on Microeconomic Theory, and tries to explain market mechanisms and price determination on capital markets.

The value of a company is given by its equity = Assets -- Liabilities.

Eugen Schmalenbach noted that the (economic) value of an asset for the owner does not follow from the price the owner paid when purchasing the asset, but from the future value (utility) the asset generates for the asset owner. A buyer purchases an object, if the price is lower than the value of future usage from the buyer’s subjective perspective. Since the price can be observed objectively, but the future value (utility) depends on the buyer and is hard to determine, the purchase price of an asset is often used as an approximation for its value. E.g., the balance sheet uses purchase prices (minus depreciation) as an approximation of asset value.

The purchase price of an asset is an adequate approximation of its value, if the asset is traded on a well-functioning market (many suppliers and consumers, high information transparency, low transaction cost).
Very few assets (and¬†hardly any companies) are traded (as¬†a¬†whole) on¬†well functioning markets. Therefore, there is no¬†‚Äúobjective‚ÄĚ value of¬†most goods (and¬†companies). It all depends on¬†the¬†subjective judgments of¬†potential buyers on¬†their use of¬†these assets (or¬†companies).

When we counted the value of the company by measuring cash flows, we did not count the Inflation.

-40,000 + 30,000 / (1 + r) + 30,000 / (1 + r^2) + 30,000/ (1 + r^3) + 30,000 / (1 + r^4) + 45,000 / (1 + r^5)

= 101,637 for r=0.05

We also did not¬†count a¬†salary. If Lena will have the¬†salary of¬†‚ā¨24k per¬†year, then
+6,000 / (1 + r) + 6,000 / (1 + r^2) + 6,000/ (1 + r^3) + 6,000 / (1 + r^4) +21,000 / (1 + r^5)
= -2,270 for r=0.05
The¬†Net Present Value (NPV) is negative¬†‚Äď so, this is bad investment. Let‚Äôs find the¬†average rate of¬†return. This is r in¬†the¬†previous equation:
+6,000 / (1 + r) + 6,000 / (1 + r^2) + 6,000/ (1 + r^3) + 6,000 / (1 + r^4) +21,000 / (1 + r^5)
= 0
the average rate of return r = ~ 3.3%. That means, if there is no inflation, then this business will generate 3.3% of profit a year. Lena will return investments in 33 years.

What about investments

Investors are not so much interested in historical purchase prices of assets (balance sheet), but they are more interested in the future cash flows (or earnings) generated by a company’s activities. While historical purchase prices, however are verifiable, future cash flows are not.
Stock prices are depending on the expectations and future cash flows (earnings) generated by a firm.
Possible purposes for evaluating company value are:

  1. determination of income taxes
  2. information of¬†investors, providers of¬†debt (banks) or¬†other stakeholders¬†‚Äď measuring and¬†managing the¬†financial performance of¬†the¬†company

Strategic perspective

strategy is about competitive advantage and about finding appropriate ways to reach predefined goals.
In a strategic analysis, the resource-based view and the market-based view complement each other.

Ford model T example

There was not such an affordable car on market.
Standardized manufacturing process. lower manufacturing costs than competitors (‚Äúcost leadership‚ÄĚ)
Reason for¬†success¬†‚Äď high value creation for¬†the¬†customer due to¬†low price
Why was a leader just for 10 years? imitators copied the manufacturing process and they met the customer preferences. You don’t have an advantage forever, you should regain it.

Red Bull example

first provider of an energy drink. There are a lot of imitators, who make the same products, unique selling proposition was vanished.
Competitive advantage is a popular and well-perceived brand.
Red Bull is more expensive than competitors, but customers are ready to pay for superior, special product.

Cost leadership, quality leadership and market barriers

Competitive advantage is based on the fact that companies manage to establish potential market barriers against potential competitors
Barriers can be based on:

  1. low manufacturing cost¬†‚Äď cost leadership
  2. High product quality, brand¬†‚Äď quality leadership
  3. Niche product¬†‚Äď combination of¬†both

SWOT

Strengths and Weaknesses are the Resource-Based View.
Opportunities and Threats are the Market-Based View.
Find your unique and powerful abilities. Think how to improve weak abilities.
What does the market want. How to develop my strengths.

BCG Portfolio

Relative market share = The company’s own market share / market share of the company’s strongest competitor
Market growth = increase in market volume compared to the previous year / market volume in the previous year.

Customer perspective

Customer perspective focuses on needs and wants, benefits and value created for a customer. Customer oriented view is a core of modern marketing.
‚ÄúThe¬†basic function of¬†marketing is to¬†attract and¬†retain customers at¬†a¬†profit‚ÄĚ.
Customer attraction and retention has to be profitable.

Red Bull example

Customer need¬†‚Äď ‚Äúlifestyle drink‚ÄĚ for¬†sport and¬†adventures.
Advertising and¬†marketing¬†‚Äď associates Redbull with success, sport, fun.
This created an added value for customer. And established a valuable brand.
Ads and marketing are the unique customer advantages of Redbull.

Ford Model T

Customer need¬†‚Äď ‚Äúcheap basic car‚ÄĚ.
By Franchising Ford created a customer-oriented distribution network.
Price and distribution are the unique customer advantage of Ford.

Maslow hierarchy

  1. Physiological needs (food, sleep, shelter)
  2. Safety Needs (financial security)
  3. Social Belonging (family, love)
  4. Esteem (recognition, prestige)
  5. Self-actualization

Relevance of marketing

Basic needs are mostly satisfied nowadays.
Marketing stimulates needs from higher layers
Marketing is dishonored as¬†‚Äúdubious‚ÄĚ or¬†‚Äúshallow‚ÄĚ.
In the long run, marketing cannot be successful by deceiving customers, but only by creating a sustainable customer benefit

The 4Ps

  1. Product: which products and services should be offered to a particular group of customers? New products, designs and variations. Brand names, guarantees, packaging, product serving.
  2. Price: At which price should a product be offered? Price policy, discrimination, willingness to pay of a particular group of customers. Discounts and negotiations.
  3. Promotion: How can potential new customers be informed about a particular new product and be convinced about its benefit? Ads, promotions, online marketing, social media. Gifts, discount cards for loyal customers.
  4. Place: How should the product or service be provided to a customer? sale channels (indirect/direct), transport, storage. Number and location of shops

A¬†company can differentiate its products from its competitors and¬†gain a¬†competitive advantage by¬†using the¬†‚Äú4Ps‚ÄĚ
The¬†realized revenue is the¬†central source of¬†‚Äúgenerating money‚ÄĚ. The¬†pricing is crucial with regard to¬†the¬†financial success; a¬†higher price can be justified by¬†more advertising, better service or¬†a¬†customer-oriented distribution.
The precise knowledge about customer wants and needs is essential for the optimal choice of the marketing mix.
Creating sustainable customer benefit is the top priority
Processes and activities within the company should be aligned to wants and needs of the customers

Production and process perspective

The Production perspective deals with the transformation of production
inputs into products and services.
The Process perspective has a goal to optimize the supply chain with regard to customer benefit and the cost of creating goods and services

Ford Model T example

Revolutionary Production process made Ford model T the most affordable car.
The¬†total manufacturing process was divided into small specialized tasks, which were then optimized. For¬†each task it was analyzed which sequence of¬†motions was most suitable to¬†perform the¬†predefined task in¬†a¬†minimum amount of¬†time. This form of¬†optimization using scientific analysis of¬†motion sequences is referred to¬†as¬†‚ÄúScientific Management‚ÄĚ or¬†‚ÄúTaylorism‚ÄĚ (Frederick Taylor).
Ford combined Taylorism with assembly line production.

McDonald’s example

McDonald’s made a burger for 30 seconds instead of 30 minutes. To do that, they made the Business process reengineering. they decomposed a hamburger production in a sequence of  activities Taylorism/“assembly line production
They focused on 2 types of burgers (cheeseburger and hamburger) and few softdrinks to reduce complexity of production process and to make fast preparation possible.

Employee perspective

In a knowledge based society human resources are key for economic success
The consideration of the production process as an interaction of people is at the core of the employee perspective.

Hawthorne studies¬†‚Äď lights experiments in¬†factory

Engineers conducted a¬†series of¬†scientific management (Taylorism) studies to¬†optimize job performance. There were 2 groups. In¬†the¬†control group received a¬†constant level of¬†light density, while in¬†a¬†‚Äėtreatment group‚Äô the¬†light density was changing. Interesting, but¬†the¬†productivity was increasing in¬†both groups, when they increased the¬†level in¬†both and¬†increased in¬†treatment, when decreased the¬†intensity of¬†illumination.
Harvard professor told that emotional factor were responsible for this effect. He added, that informal structures and social factors (group dynamics, informal hierarchies, group coherence, etc.) influenced the job performance.

These studies had a¬†strong impact on¬†the¬†theory of¬†labor relations and¬†the¬†relevance of¬†incentives and¬†motivation for¬†workers within an¬†organization, development of¬†behavioral (and¬†humanistic) management theories as¬†a¬† ‚Äėcountermovement‚Äô of¬†Taylorism (scientific methods)

Traditional view

  1. Traditional view of Taylorism and Fordism is that production process is divided into individual tasks to economize the benefits of specialization and to optimize the fulfillment of subtasks.
  2. Hierarchical organization structure clearly defines responsibilities and authorities
  3. Motivation and performance is based on centralized authority (threat of layoff), bureaucracy (rules and procedures) and explicit incentives (precised motivation)

Humanistic Management Theory

Business management does not¬†only have an¬†objective/rational component (optimization of¬†processes), but¬†also has ‚Äėpersonal, human, psychological, social‚Äô component. Managers can also influence employees by¬†being charismatic, being a¬†role model or¬†just a¬†good leader with vision of¬†the¬†full picture.
In¬†industrial company machines are the¬†main strategic resources. In¬†today‚Äôs ‚Äėknowledge-based‚Äô society ‚Äėhuman capital‚Äô is the¬†most relevant strategic resource and¬†source of¬†competitive advantage.
Thus, questions on leadership and management of human capital have gained core relevance for the economic success of companies

Normative perspective

Corporate Governance as the set of rules and mechanisms that shape value generation and distribution of value (appropriation) among stakeholders.
The independence between the size of the pie and its distribution

three cases to show the importance of business ethics

  1. Was that harassment in the workplace?
  2. The Ford Pinto case
  3. Ethics vs. Career

Check yourself in a quizz

in this PDF you can find answers for the mock exam

If you like that article, please write some comments or share this post in Facebook or anywhere else. Then I will made the same thing for Contemporary Challenges in Business and Economics and other courses.

2020   Business and Economics   english   study   WU   –ź–≤—Ā—ā—Ä–ł—Ź
2000   Business and Economics   Communication   english
2000   Business and Economics   Communication   english   text

Benefits for employees

I collected benefits for employees, that employers can purchase. The article is constantly updating

Austria

links appear in future

Russia

links appear in future

Additional benefits

Working

Remote working
Flexible working time

Food

free food
compensation for food
discount on a company’s products

Transport

free parking
free ticket for public transport
free travel with a team
free bicycle

Sport

free gym
team sport

Personal future

Giving shares for outstanding work.
pension for long-term employees.
help with employee’s projects or startups

Personal growth

free psychologist
Training: scrum, agile, etc.
Payment for MBA or Masters.
Courses for employee

It is a nice business idea to make such a service, on which employers could register employees and get bonuses without additional problems

2000   Business and Economics   english   projects

Trade Regulations of Austria. Important Notes

This article consists of quotes from the  Austrian trade regulation document, that I found most important. The text was translated and copypasted to this article without any additional edits, except for my thoughts that I marked with bold text. The article will be edited continuously.

Due to irrelevance to the theme of a blog and a huge length, I moved the article to the year 2000. There I put articles, that I want to be public, but dont want to be in the feed.

§ 1. (1) Unless §§ 2 to 4 stipulates otherwise, this Federal Act applies to all activities carried out commercially and not prohibited by law.

(2) An activity is carried out commercially if it is carried out independently, regularly and with the intention of generating an income or other economic advantage, regardless of the purposes for which it is intended; it makes no difference whether the income or other economic advantage intended by the activity should be achieved in connection with activity falling within the scope of this Federal Act or in connection with an activity not subject to this Federal Act.
(3) Self-employment within the meaning of this Federal Act exists if the activity is carried out at your own expense and risk.
(4) A one-off act is also considered a regular activity if, according to the circumstances of the case, the intention of repetition can be concluded or if it requires a longer period of time. Offering an activity forming the subject of a trade to a larger circle of people or in the case of tenders is kept equal to the exercise of the trade. Publication of an activity forming the subject of a trade in registers shall not be considered an exercise if the publication is based on legal obligations.

§ 5. (1) Unless otherwise provided for this Federal Act with regard to individual trades, trades may be exercised on the basis of the registration of the trade in question (§ 339) if the general and the special conditions prescribed for individual trades are met.

(2) Free trades are activities within the meaning of § 1 para. 1, which are not expressly listed as regulated trades (§ 94) or partial trades (§ 31). Without prejudice to any exercise regulations, no proof of formal qualifications must be provided for free trades.

General requirements for the practice of trades

§ 9. (1) Legal entities and registered partnerships (open companies and limited partnerships) can trade, but must have appointed a managing director (§ 39).

(2) If the managing director resigns, the trade may continue to be exercised until the appointment of a new managing director, but for a maximum of six months. The authority must shorten this period if the further exercise of the trade without a managing director poses a particular risk to the life or health of people or if the trade has been exercised for more than six months without a managing director for more than six months in the previous two years before the resignation of the manager.
(3) If registered partnerships want to pursue a business for which the provision of a certificate of competence is required, a general partner who is entitled to manage and represent the company under the articles of association or at least half of the weekly normal working hours employed in the company who are fully subject to insurance in accordance with the provisions of social security law must be appointed managing director (§ 39). This provision does not apply to the trades listed in § 7 para. 5, which are carried out in the form of an industrial enterprise; furthermore, this provision does not apply in the event of the death of the managing director (§ 39), if the company continues to pursue the trade after the death of this personally liable partner, until the end of the abandonment treatise according to this partner, in the case of the prior resignation from the company only until the time of departure.
(4) If a legal person is a general partner of a registered partnership, paragraph 3 shall also be complied with if a natural person is appointed as managing director (§ 39) of this partnership who belongs to the organ of the legal person concerned appointed to represent the legal representation, or who is an employee of this legal person who is fully insured in the company who is fully subject to insurance under the provisions of
(5) If a registered partnership is a general partner of another such partnership, paragraph 3 shall also be complied with if a natural person is appointed managing director (§ 39), who is a general partner of the member company concerned and who has the position prescribed for the managing director in paragraph 3 within this member company. This member company must have the position prescribed for the managing director in paragraph 3 within the registered partnership.
(6) If a legal person is a general partner of a registered partnership and this partnership is a general partner of another such partnership, paragraph 3 shall also be complied with if a person is appointed managing director (§ 39) of the latter partnership who belongs to the organ of the legal person appointed to legal representation, if the legal person within the member company also has the position prescribed in paragraph 3 and if, finally, this member company also has the position prescribed in paragraph 3 within its member company.

§94 Regulated trade

82 business types are regulated. It includes:

  • Monument, facade, and¬†building cleaning
  • Builder
  • Bookbinding; case and¬†cassette production; Production of¬†cardboard goods (connected crafts)
  • Tourist guide
  • Real estate trustees (real estate agents, property managers, property developers)
  • Travel agencies
  • Engineering offices (consulting engineers)
  • Management consulting including the¬†business organization
  • Commercial investment advice
  • Insurance brokerage (insurance agent, insurance broker and¬†advice on¬†insurance matters)
  • Securities intermediaries

§95 (2) In the case of the trades listed in paragraph 1, the appointment of a managing director or a branch manager for the exercise of the trade is subject to approval. The permit must be granted at the request of the trader if the in § 39 para. 2 or § 47 para. 2 are met.

§ 99. (1) The builder (§ 94 Z 5) is entitled to

  1. to plan and calculate building constructions, civil engineering and other related buildings,
  2. to manage building constructions, civil engineering and other related buildings and to carry out construction supervision,
  3. to also carry out building constructions, civil engineering and other related buildings in accordance with paragraph 2 and to demoliate building constructions, civil engineering and other related buildings,
  4. to set up scaffolding that require static knowledge,
  5. for project development, management and control, project management and the assumption of construction management,
  6. within the scope of his business license to represent his client before authorities and bodies under public law.
    (2) The builder is also entitled to take over, plan and calculate and manage the work of other industries as part of his construction management. He is also entitled to carry out this work himself as part of his construction management, insofar as it concerns activities of concrete goods producers, artificial stone producers, terrazzo makers, black-deckers, screed manufacturers, stone wood layers, gardeners, plasterers and drywallers, heat, cooling, sound and fire dampers and sealers against moisture and pressurized water. The builder may take over and carry out the production of screed and drywalling activities independently of a construction management. Insofar as it concerns works of trades not mentioned in this paragraph, he must use the authorized traders to carry out this work. Furthermore, without prejudice to the rights of the well masters, he is entitled to carry out deep drilling of all kinds.
    (3) The qualification for activities in accordance with para. 1 no. 1 and 2 can only be provided by means of a certificate of competence in accordance with § 18 para. 1.
    (4) The authorization of other traders to draw up the preliminary drafts required in connection with the planning of technical plants and facilities in the field of building and civil engineering remains unaffected.
    (5) If the¬†trade of¬†the¬†builders is registered to¬†an¬†extent that does not¬†have the¬†right to¬†comprehensive planning in¬†accordance with para. 1 no. 1, the¬†trade applicant must use the¬†term ‚Äúconstruction trader‚ÄĚ with the¬†corresponding restriction. Only traders whose business authorization has the¬†right to¬†comprehensive planning in¬†accordance with para. 1 Z 1, may use the¬†designation ‚Äúbuilder‚ÄĚ. Traders who are entitled to¬†carry out the¬†master craftsman‚Äôs trade to¬†a¬†limited extent to¬†the¬†execution of¬†buildings may not¬†use a¬†designation that could give the¬†impression that they are entitled to¬†plan buildings.
    (6) At¬†the¬†request of¬†the¬†trader, the¬†Federal Minister of¬†Economic Affairs and¬†Labour must determine within three months by¬†decision that the¬†trader whose trade license has the¬†right to¬†comprehensive planning in¬†accordance with ¬ß 99 para. 1 Z 1 contains, in¬†addition to¬†the¬†designation ‚Äúbuilder‚ÄĚ, may also use the¬†term ‚Äúcommercial architect‚ÄĚ if he
  7. a certificate of training in accordance with Article 49 of Directive 2005/36/EC
    a) either on the basis of the successful completion of the maturity test at a relevant domestic higher technical college (building construction) and worked as a construction trader for at least ten years or in a function equivalent to the same
    b) or on the basis of a domestic relevant university (university) degree program and
  8. in another Member State of the European Economic Area or of the European Union, on the basis of the rules and standards applicable therein or even from the assumption of public contracts in the field of his business license or from participation in public tenders or on the basis of the rules and standards applicable therein, has been excluded from the takeover of private contracts or from participation in private tenders only because
    (7) The traders entitled to exercise the master craftsman’s trade (§ 94 Z 5) or the partial trade originating from the master craftsman’s trade must take out liability insurance for personal injury, property damage and financial loss for their professional activity. Liability insurance must be provided by a company that is authorized to operate in Austria. The insured sum must be:
  9. For a trader entitled to practice the master craftsman’s trade (§ 94 Z 5) or the sub-trade originating from the master craftsman’s trade with a maximum annual turnover in accordance with § 221 para. 2 no. 2 in conjunction with § 221 para. 4 Corporate Code: at least EUR 1,000,000 per claim, whereby it is permissible to limit the insurance benefit per annual insurance period to EUR 3,000,000.
  10. For a trader entitled to exercise the master craftsman (§ 94 Z 5) or the partial trade originating from the master craftsman’s trade with more than one annual turnover in accordance with § 221 para. 2 no. 2 in conjunction with § 221 para. 4 Corporate Code: at least EUR 5,000,000 per claim, whereby it is permissible to limit the insurance benefit per annual insurance period to EUR 15,000,000.
    For these compulsory insurance sums, a deductible of a maximum of five % of these sums per claim may be agreed.
    (8) When registering the master builder’s trade (§ 94 Z 5) or a partial trade originating from the builder’s trade, proof of liability insurance for personal injury, property damage and financial loss in accordance with para. 7 must be provided in addition to the requirements in accordance with § 339 para. 3.
    (9) In the event of freedom of performance of the insurer from liability insurance for personal injury, property damage and financial loss to the insurer’s local authority responsible for the builder (§ 94 Z 5) or a partial trade originating from the builder’s trade and regarding the liability of the insurer in view of a third party, the provisions of § 92 GewO 1994 No. 2/1959, as amended. § 158c para. 2 VersVG applies with the proviso that the circumstance that results in the non-existence or termination of the insurance relationship only takes effect vis-à-vis the third party after the insurer has notified this circumstance to the authority.
    (10) In the event of the abolition of liability insurance for personal injury, property damage and financial loss within the meaning of paragraph 7, the authority must immediately initiate trade deprivation procedure and, if new liability insurance for personal injury, property damage and financial loss is not proven immediately, withdraw the trade license within a maximum of two months. § 361 para. 2 does not apply in this case. Complaints against withdrawal notices have no suspensive effect. The initiation of the trade deprivation procedure must be noted in GISA.

§ 117. (1) The trade of real estate trustees (§ 94 Z 35) includes the activities of real estate agents, property managers and property developers.

(2) The real estate agent’s area of activity includes

  1. the mediation of the purchase, sale and exchange of undeveloped and built-up land and rights to real estate including the mediation of rights of use to real estate (such as acquired through timeshare contracts) and the mediation of the purchase, sale and exchange of apartments, business premises, prefabricated houses and companies;
  2. the mediation of existing contracts for real estate, including the brokerage of existing contracts for apartments, business premises and companies;
  3. the trade in real estate including the hire purchase. This also includes the construction of buildings that the broker as a builder has carried out by authorized traders for the purpose of resale as a whole;
  4. the mediation of participations in real estate funds;
  5. the advice and support for the shops listed in Z 1 to 4. Traders who are entitled to carry out these activities are also entitled to broker mortgage loans as well as to broker private rooms to travelers for temporary residence and to keep a guest room certificate;
  6. the implementation of the public auction of real estate, superaddicates and building rights according to § 87c NO;
    § 158 applies.
    (3) The area of activity of the real estate manager includes all activities necessary and appropriate for the management of built-up and undeveloped properties, the preservation, repair, improvement and renovation of which. This also includes the collection of funds and the payment of payments related to administrative activities. Property managers are also entitled to
  7. to advise homeowners and apartment owners in tax matters under the administrative contract as well as to write documents and submissions;
  8. carry out administrative activities for individual co-owners of a property, provided that this does not create a conflict of interest with the community of owners whose property they manage;
  9. to carry out simple repair and repair work on the objects they manage.
    (4) The scope of activity of the developer includes the organizational and commercial processing of construction projects (new buildings, sweeping renovations) on his own or third-party account as well as the renovation of buildings equivalent to a new building with regard to the construction effort. The developer is also entitled to recycle these buildings.
    (5) Real estate trustees are also entitled to represent their clients before administrative authorities, funds, funding agencies and corporations under public law as well as in court within the scope of their business authorization and mission, provided that there is no legal obligation.
    (6) The establishment of contracts by real estate trustees is permitted if this consists in the completion of formally designed contracts.
    (7) The traders entitled to carry out the business of real estate agents (§ 94 Z 35) must take out financial loss liability insurance with an insurance sum of at least 100,000 euros per claim for their professional activities. For this compulsory insurance sum, a deductible of a maximum of five % of this sum may be agreed per claim. It is permissible to limit the insurance benefit per annual insurance period to EUR 300,000. Financial loss liability insurance must be provided by a company that is authorized to operate in Austria. If the activity of brokering mortgage loans in accordance with para. 2 Z 5 is not excluded from the trade wording, the professional liability insurance or equivalent guarantee in accordance with Article 1 of Delegated Regulation (EU) No 1125/2014 supplementing Directive 2014/17/EU of the European Parliament and of the Council with regard to regulatory technical standards for the minimum coverage amount of professional liability insurance or equivalent guarantee for credit intermediaries, OJ No. L 305, 10/24/2014 p. 1.
    The traders entitled to carry out the business of real estate managers (§ 94 Z 35) must take out financial loss liability insurance for their professional activities with an insurance sum of at least 400,000 euros per claim. For this compulsory insurance sum, a deductible of a maximum of five % of this sum may be agreed per claim. It is permissible to limit the insurance benefit per annual insurance period to EUR 1,200,000. Financial loss liability insurance must be provided by a company that is authorized to operate in Austria.
    The traders entitled to carry out the business of the developers (§ 94 Z 35) must take out financial loss liability insurance with an insurance sum of at least 1,000 000 euros per claim for their professional activity. For this compulsory insurance sum, a deductible of a maximum of five % of this sum may be agreed per claim. It is permissible to limit the insurance benefit per annual insurance period to EUR 1 500 000 for companies with an annual turnover of less than EUR 2,000,000 and to EUR 3,000,000 for other companies. Financial loss liability insurance must be provided by a company that is authorized to operate in Austria.
    (8) When registering the trade of the real estate trustees, proof of financial loss liability insurance in accordance with para. 7 must be provided in addition to the requirements of § 339 para. 3.
    (9) In the event of freedom from performance of the insurer from financial loss liability insurance, the provisions of § 92 GewO 1994 and the provisions of §§ 158b to 158i of the VersVG, BGBl apply to the notification of the insurer to the local authority for the real estate trustee and regarding the liability of the insurer in view of a third party. No. 2/1959, as amended. § 158c para. 2 VersVG applies with the proviso that the circumstance that results in the non-existence or termination of the insurance relationship only takes effect vis-à-vis the third party after the insurer has notified this circumstance to the authority.
    (10) In the event of the abolition of financial loss liability insurance within the meaning of paragraph 7, the authority must immediately initiate trade deprivation proceedings and, if a new financial loss liability insurance is not proven immediately, withdraw the trade license within a maximum of two months. § 361 para. 2 does not apply in this case. Complaints against withdrawal notices have no suspensive effect. The initiation of the trade deprivation procedure must be noted in GISA.

§136a. (1) The commercial investment advisor (§ 94 Z 75) is entitled to

  1. Advice on the development, safeguarding and maintenance of assets and financing with the exception of investment advice on financial instruments (§ 3 para. 2 Z 1 WAG 2018),
  2. Mediation of
    a) Investments and investments, excluding financial instruments (§ 3 para. 2 Z 3 WAG 2018),
    b) Personnel loans and mortgage loans and financing (instences, offerings and other preparatory work on credit agreements and concluding them for the lender) and
    c) Life and accident insurance.
    (Note: para. 1a repealed by BGBl. I No. 155/2015)
    (2) With regard to the mediation of life and accident insurance, the commercial investment advisor is subject to the provisions of §§ 137 to 138 and the other provisions regarding insurance brokerage.
    (3) Commercial investment advisors are entitled to the activities of § 1 Z 45 WAG 2018 as securities intermediaries (§ 94 Z 77). Activities as a tied intermediary according to § 1 Z 44 WAG 2018 may not be carried out in this case.
    (4) When registering the trade of commercial investment advice (§ 94 Z 75), if the activity of the securities intermediary is carried out, proof of the existence of a representative relationship must be attached in addition to the evidence in accordance with § 339 para. 3. The applicant may only start exercising the activity of securities brokerage from the date of entry in GISA.
    (5) The trader must immediately inform the trade authority of the termination of the last representation relationship. After becoming aware of the abolition of the last representation relationship, the authority must immediately initiate a withdrawal procedure regarding the activity as a securities intermediary and, if a representation relationship is not proven immediately, withdraw the authorization as a securities intermediary within two months at the latest. § 361 para. 2 first sentence does not apply in this case. Complaints against withdrawal notices have no suspensive effect. The initiation of the withdrawal procedure must be noted in GISA.
    (6) Commercial investment advisors must meet the requirements of continuous vocational training and further education in order to maintain an adequate level of performance that corresponds to the tasks they perform and the corresponding market. For this purpose, these persons must complete at least 20 hours of vocational training or further education per year from the calendar year next to registration in GISA. This obligation replaces the obligation under § 137b para. 3. Proof of participation in the training must be kept available at the location of the trade for at least five years for inspection by the authority at any time. Commercial investment advisors may only use personnel that meet the requirements of this paragraph.
    (6a) Relevant courses are considered training within the meaning of para. 6. The responsible specialist organization of the Austrian Chamber of Commerce must develop a curriculum for the training content. The curriculum must provide for the trader that at least half of the continuing education obligation may only be carried out with certain independent educational institutions. The curriculum can extend over several years. The curriculum requires confirmation from the Federal Minister for Digitalization and Business Location. The Financial Market Supervisory Authority (FMA) must be given the opportunity to comment within a reasonable period of time by the Federal Minister for Digitalization and Business Location before issuing the confirmation. The curriculum may provide for a smaller minimum number of hours for traders or their staff, provided that areas of activity are excluded from the scope of business.
    (7) Commercial investment advisors acting as securities intermediaries may perform the activities referred to in § 1 Z 45 WAG 2018 for no more than three companies. The commercial investment advisor acting as a securities intermediary must clearly disclose the respective business owner to the contractual partner (securities customers) at each time they take up business and point out the entry in the register with the FMA. If the securities intermediary does not clearly disclose the contractual client, all persons are liable in accordance with § 37 para. 7 WAG 2018 registered business owners in solidarity.
    (8) Commercial investment advisors are entitled to the activities of § 1 Z 44 WAG 2018 as a tied agent. Activities as a securities intermediary according to § 1 Z 45 WAG 2018 may not be carried out in this case.
    (9) When registering the trade of commercial investment advice (§ 94 Z 75), if the activity of the tied intermediary is carried out, proof of the existence of the representation relationship must be attached in addition to the evidence in accordance with § 339 para. 3. The applicant may only start exercising the activity of the tied agent from the date of entry in GISA.
    (10) The trader must immediately inform the trade authority of the termination of the last representation relationship. After becoming aware of the abolition of the representative relationship, the authority must immediately initiate a withdrawal procedure regarding the activity as a tied intermediary and, if a representative relationship is not proven immediately, withdraw the entitlement as a tied intermediary within no more than two months. § 361 para. 2 first sentence does not apply in this case. Complaints against withdrawal notices have no suspensive effect. The initiation of the withdrawal procedure must be noted in GISA.
    (11) Commercial investment advisors must when accepting and transmitting orders in connection with investments in accordance with § 1 para. 1 Z 3 Capital Markets Act, KMG, BGBl. No. 625/1991, § 56 WAG 2018, BGBl. I No. 107/2017 as amended.
    (12) Traders entitled to pursue the trade of investment advisors must take out financial loss liability insurance for their professional activities with an insurance sum of at least 1,111,675 euros for each individual claim and 1,6677,513 euros for all claims of a year. This does not apply to activities for which there is liability protection within the meaning of para. 4 or para. 9 or § 137c. The aforementioned minimum insurance sums increase or decrease as a percentage of the European Consumer Price Index published by Eurostat from 15.1.2013 and thereafter regularly every five years, rounding them up to the next higher full euro amount. The provisions of § 117 para. 8 to 10 must be applied mutatis mutandis. For activities of brokering mortgage loans in accordance with para. 1 no. 2 lit. b, professional liability insurance or equivalent guarantee in accordance with Article 1 of Delegated Regulation (EU) No 1125/2014 must be available from the aforementioned amounts of coverage.
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