Chpt 1 Notes for Finance
Finance- The art and science ofmanaging money.
Financial services is the area of finance concerned with the design and delivery of advice and financial products to individuals, business, and government
Managerial finance is concerned with the duties of the financial manager in the business firm.
Financial managers actively manage the financial affairs of any type of businesses—financial and nonfinancial, private and public, large and small, profit-seeking and not-for-profit.
Legal Forms of Business Organization
The three most common legal forms of business organization are the sole proprietorship, the partnership, and the corporation. Other specialized forms of business organization also exist. Sole proprietorships are the most numerous.
A sole proprietorship is a business owned by one person who operates it for his or her own profit.
unlimited liability; his or her total wealth—not merely the amount originally invested—can be taken to satisfy creditors.
A partnership consists of two or more owners doing business together for profit. Partnerships account for about 10 percent of all businesses, and they are typically larger than sole proprietorships. In a general (or regular) partnership, all partners have unlimited liability, and each partner is legally liable for all of the debts of the partnership.
articles of partnership The written contract used to formally establish a business partnership.
A corporation is an artificial being created by law. Often called a “legal entity,” a corporation has the powers of an individual in that it can sue and be sued, make and be party to contracts, and acquire property in its own name. Only 15% of bus.’s are incorp.’ed.
The owners of a corporation are its stockholders, whose ownership, or equity, is evidenced by either common stock or preferred stock.
common stock The purest and most basic form of corporate ownership.
Dividends Periodic distributions of earnings to the stockholders of a firm.
board of directors group elected by firm’s stockholders is typically responsible for developing strategic goals and plans, setting general policy, guiding corporate affairs, approving major expenditures, and hiring/firing, compensating, and monitoring key officers and executives.
The president or chief executive officer (CEO) is responsible for managing day-to-day operations and carrying out the policies established by the board of directors.
LIMITED LIABILITY ORGANIZATIONS
Limited partnership (LP) A partnership in which one or more partners have limited liability as long as at least one partner (the general partner) has unlimited liability. The limited partners cannot take an active role in the firm’s management; they are passive investors.
S corporation (S corp) A tax-reporting entity that (under Subchapter S of the Internal Revenue Code) allows certain corporations with 100 or fewer stockholders to choose to be taxed as partnerships. Its stockholders receive the organizational benefits of a corporation and the tax advantages of a partnership. But S corps lose certain tax advantages related to pension plans.
Limited liability corporation (LLC) Permitted in most states, the LLC gives its owners, like those of S corps, limited liability and taxation as a partnership. But unlike an S corp, the LLC can own more than 80% of another corporation, and corporations, partnerships, or non- U.S. residents can own LLC shares. LLCs work well for corporate joint ventures or projects developed through a subsidiary.
Limited liability partnership (LLP) A partnership permitted in many states; governing statutes vary by state. All LLP partners have limited liability. They are liable for their own acts of malpractice, but not for those of other partners. The LLP is taxed as a partnership. LLPs are frequently used by legal and accounting professionals.
The treasurer (the chief financial manager) is...
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