First, consider some basic background information concerning the differences between not-for-profit organizations and investor-owned firms. What are the key features of investor-owned firms? How do a firm's owners exercise control?

Question

Sandra McCloud, a finance major in her last term of college, is currently scheduling her placement interviews through the university's career resource center. Her list of companies is typical of most finance majors: several commercial banks, a few industrial firms, and one brokerage house. However, she noticed that a representative of a not-for-profit hospital is scheduling interviews next week, and the position--that of financial analyst--appears to be exactly what Sandra has in mind. Sandra wants to sign up for an interview, but she is concerned that she knows nothing about not-for-profit organizations and how they differ from the investor-owned firms that she has learned about in her finance classes. In spite of her worries, Sandra scheduled an appointment with the hospital representative, and she now wants to learn more about not-for-profit businesses before the interview.
To begin the learning process, Sandra drew up the following set of questions. See if you can help her answer them.

Answer 1

Investor-owned firms have three primary characteristics: (1) the owners (shareholders) of the firm are well defined, and they exercise control by voting for the firm's board of directors; (2) the firm's residual earnings belong to the owners, so management is responsible to this single, well-defined group for the firm's profitability; and (3) the firm is subject to taxation at the federal, state, and local levels.