FINANCE AND INVESTMENTS

chapter 1&2 LOL

types of firms

sole proprietorship

partnerships

limited liability companies

corporations

sole proprietorships

owned and run by one person - usually very few if any employees

LIM- no separation between the firm and the owner - NO INVESTORS CAN HOLD AN OWNERSHIP STAKE IN THE FIRM

unlimited personal liability for the firms debts - could lean to personal bankruptcy

difficult to transfer ownership

partnerships

identical to a sole proprietorship except it has more than one owner

• all partners are liable for the firms debt - any lender can require any partner to pay debts

for sole proprietorship and partnership what does partners personal liability play a role in

increases the confidence of the firms clients that the partners strive to maintain there reputation

types of partnership

general partnership- same rights and privileges as the partners - personally liable for the firms debt obligations

limited partnership- liability is limited to their investment - rivate property cannot be siezed to pay off the firms outstanding debts

DEATH or withrawal does not dissolve the partnership

BUT NO MANAGEMENT AUTHORITY

exampls of limited partnership s

private equity and venture capitaal funds

limited liability compancy llc

limited partnership WITHOUT A GENRAL PARTNER

owners have limited liability but they can also run the business

corporation

arificial being(judicial person,legal entity) seperate from its owners

OWNERS OF A CORP are not liable for any obligations the corportaion enters into

corp not liable to any obligations for its owners

corp formation

must be legally formed

more costly than a sole propertiership therefore due to legal necessessiities

corp is a citizen of the state lowkey

corp ownership

• no limit on owners

• ownership of a stake of a corporation is called SHARES

collection of all outstanding shares of a corporation

EQUITY OF A CORPORTAION

owner of a share of stock

shareholder stockholder equity holder - WHO ARE ENTITLED TO DIVIDEND PAYMENTS

dividend payments

payments made at discretion of the corp to its equity holders

tax implication in corporations

because corp is a separate legal entity - shareholders pay taxes twice - one for the corp and more for their own legal obligations

S corporations

• firmsprofits and losses are not subject to taxes

• allocated directly to sharehlders based on their stake

financial manager

• investment decisions

• financing decisions

• cash management

agency problem

when managers despite being hired as the agents pof shareholders put their own self interest ahead of others interest

stock price and performance

good management - [roce rises

bad manegemnt - price falls

golden parachute

a pre-negotiated, lucrative contract guaranteeing significant benefits—cash, stock options, and bonuses—to top executives if they lose their jobs following a company merger or acquisition.

when firm fails to repay debrs

ownership of a firm changes from equity holders to debt holders

• DOES NOT NECCESSARILY LEAD TO LIQUIDATION

coprorate bankrupcy

not seen as failure for a change in ownership