Business Finance - Week 2
Business Finance - Week 2 FIN 3010-001
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This 2 page Class Notes was uploaded by Anna Notetaker on Sunday September 6, 2015. The Class Notes belongs to FIN 3010-001 at Middle Tennessee State University taught by Gregory Nagel in Fall 2015. Since its upload, it has received 106 views. For similar materials see Business Finance in Finance at Middle Tennessee State University.
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Date Created: 09/06/15
Business Finance Fin 3010 Prof Nagel Sole proprietorship is a business owned by a single individual This is the simplest type of business to start and is the least regulated form of organization The bad news is that the owner has unlimited liability for business debts This means that the creditors can look to the proprietor39s personal assets for payment Ownership of a sole proprietorship may be dif cult to transfer since this requires the sale of the entire business to a new owner pg 11 A partnership is a business formed by two or more individuals or entities In a general partnership all the partners share in gains or losses and all have unlimited liability for all partnership debts not just some particular share The way partnerships gain and lose are divided is known as partnership agreement In a limited partnership one or more general partners will run the business and have unlimited liability but there will be one or more limited partners who do not actively participate in the business Ownership by a general partner is not easily transferred because a new partnership must be formed A limited partner39s interest can be sold without dissolving the partnership but nding a buyer may be difficult The primary disadvantages of sole proprietorships and partnerships as forms of business organization 1 Unlimited liability for business debts on the part of the owners 2 Limited life of the business 3 Dif culty of transferring ownership Corporation is a business created as a distinct legal entity owned by one or more individuals or entities A corporation is a legal quotpersonquot separate and distinct from its owners and it has many of the rights duties and privileges of an actual person The corporate form has a signi cant disadvantage Since a corporation is a legal person it must pay taxes Moreover money paid out to stockholders is the form of dividends is taxed again as income to those stockholders This is double taxation The goal of nancial management is to maximize the current value per share of the existing stock Maximizing stock value is the same thing as maximizing the market price per share An agency problem is the possibility of con ict of interest between the owners and management of a rm If management does not take the investment then the stockholders may lose a valuable opportunity This is known as agency cost The available theory and evidence are consistent with the view that stockholders control the rms and that stockholder wealth maximization is the relevant goal of the corporation A stockholder is someone other than a stockholder or creditor who potentially has a claim on the cash ows of the rm In general a stakeholder is someone other than a stockholder or creditor who potentially has a claim on the cash ows of the rm Cash ows between the frim and the nancial markets Firm issues securities to raise cash Firm invests in assets Firm s operations generate cash ow Cash is paid to government as taxes Other stakeholders may receive cash Reinvested cash ows are plowed back into rm Cash is paid out to investors in the form of interest and dividends apem th The primary market refers to the original sale of securities by governments and corporations The secondary markets are those in which these securities are bought and sold after the original sale
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