The Financial Environment: Questions & Problems Questions 2.1, 2.2, 2.3, 2.6, 2.8; Problems: 2.1, 2.5
2.1 The three primary forms of businesses are: Proprietorship, Partnership, and Corporation. Benefits: Proprietorship: Easy to create form a legal perspective, inexpensive to create, subject to few governmental regulations Partnership: Low cost and easy to form, income is taxed as personal and not corporate. Corporation: Corporations have unlimited life, easy to transfer ownership, owners have limited liability. Disadvantages of proprietorship and partnership: Selling interest is difficult, owners have unlimited liability, the life of the business is limited to the life of the owners, restricted to small business status. Disadvantages of Corporations: Double taxation, time consuming and costly to set-up the corporation and file periodic reports.
2.2 Differences: Investor owned vs. not for profit: Investor owned: Individulas become owners when they purchase shares of common stock, shares can be either publicly held or privately held, stockholders have the right of control, a claim to residula earnings, and a claim on liquidation proceeds. Not-for-profit corporations: are tax exempt, run exclusively for the public - profits are not used for private gain, no single body of individuals has ownership rights or excersises control over the firm.
2.3 a. The primary goal of investor-owned corporations is wealth maximization. b. The primary goal of not-for-profit organizations is maintaining financial viability. c. There are differences between both in regard to their financial goals in that for profit corporations