Corporations: Finance, Forms, Ethics

Good Essays
a. Why is corporate finance important to all managers? Answer: Corporate finance provides the skills managers need to: (1) identify and select the corporate strategies and individual projects that add value to their firm; and (2) forecast the funding requirements of their company, and devise strategies for acquiring those funds.

b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.

Answer: The three main forms of business organization are (1) sole proprietorships, (2) partnerships, and (3) corporations. In addition, several hybrid forms are gaining popularity. These hybrid forms are the limited partnership, the limited liability partnership, the professional corporation, and the s corporation. The proprietorship has three important advantages: (1) it is easily and inexpensively formed, (2) it is subject to few government regulations, and (3) the business pays no corporate income taxes. The proprietorship also has three important limitations: (1) it is difficult for a proprietorship to obtain large sums of capital; (2) the proprietor has unlimited personal liability for the business’s debts, and (3) the life of a business organized as a proprietorship is limited to the life of the individual who created it.
The major advantage of a partnership is its low cost and ease of formation. The disadvantages are similar to those associated with proprietorships: (1) unlimited liability, (2) limited life of the organization, (3) difficulty of transferring ownership, and (4) difficulty of raising large amounts of capital. The tax treatment of a partnership is similar to that for proprietorships, which is often an advantage.
The corporate form of business has three major advantages: (1) unlimited life, (2) easy transferability of ownership interest, and (3) limited liability. While the corporate form offers significant advantages over

You May Also Find These Documents Helpful

  • Good Essays

    What are the three legal forms of business organization? What are their advantages and disadvantages?…

    • 875 Words
    • 4 Pages
    Good Essays
  • Good Essays

    A significant advantage of the sole proprietorship is that it is cheap and easy to form. If the sole proprietor has limited capital to start with, it may not be desirable to spend part of that capital forming a corporation. Also, limited liability for business debts may not be a significant advantage if the proprietor has limited capital, most of which is tied up in the business…

    • 598 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Choosing a form of business is very important for an entrepreneur because the choice can make an extremely large difference in long-term success. “The form is fundamental to the way the business operates; how it is taxed; what liability its owners have; how expenses, compensation and benefits are treated; and the problems that the business owner may encounter” (Forms of Business Organization 4) Business in the Unites States can be organized in one of three basic legal forms: sole proprietorship, partnership, and corporation; each one has its own advantages and disadvantage which help owners understand the unique problems facing in his business prospects. First, sole proprietorship is a business owned by one…

    • 1345 Words
    • 6 Pages
    Good Essays
  • Powerful Essays

    Corporate finance is important to all mangers because it lets them know the company’s financial situation before any decisions can be made within the organization. It helps managers develop strategic financial issues associated with achieving goals. Having a solid understanding of corporate finance helps mangers find ways to raise and manage its capital, which type of investments the firm should make, if profits are earned, how these profits should be allocated to shareholders in the form of dividends and lastly if any other type of firms should be acquired or merged with. Knowing these key points about corporate finance will help the overall organization.…

    • 2341 Words
    • 10 Pages
    Powerful Essays
  • Satisfactory Essays

    Answer: Corporate finance is important to all managers because it helps them gauge the future of the company and subsequently strategize and decide the path that they believe is best for the company to take, in order to maximize profit and increase the overall value of the corporation. By knowing the financial situation, managers can determine whether the company is financially healthy and thus determine how best to proceed.…

    • 757 Words
    • 4 Pages
    Satisfactory Essays
  • Powerful Essays

    Business Sample Questions

    • 1643 Words
    • 7 Pages

    Compare and contrast the following forms of business organization: sole proprietorship, general partnership, limited partnership, limited liability company, and corporation as to ease of formation, liability of owners, management, and tax implications.…

    • 1643 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    What are the 3 forms of business organization, and what are the advantages and disadvantages of each form? For a corporation, what is the overall goal of the financial manager? Do you agree with this goal? Why or why not?…

    • 652 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Fin534 Quiz 1

    • 1767 Words
    • 8 Pages

    One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners.…

    • 1767 Words
    • 8 Pages
    Satisfactory Essays
  • Good Essays

    In the United States or Canada there are many forms of business ownership. Many business owners, in the US, who decide to start-up their own business must carefully choose a form of business ownership for their corporation, this will determine the legal arrangements of the business. The reason it is important for a business manager to choose a legal development for his company is because this decision will have an effect on matters such as taxes and regulatory requirements. If an executive manager doesn’t make a precise decision than his business has less chances of achievements. Al though there are many types of businesses in the US they all have their advantages and disadvantages this is why, again ,it is very important for a business owner to carefully choose the business he wants to manage and operate according to his needs. The first form of business ownership in the US is sole proprietorship. A sole proprietorship business is owned by one individual. The owner may operate the business on his own or hire others. There are some disadvantages of a sole proprietorship. The disadvantage of a sole proprietorship is that the financial resources are limited by the resources of the owner. Profits are treated as personal income so you have to pay personal income taxes not business income taxes which are generally low. Unlimited assets even if they are not related to the business. Business life is limited to the owner's lifespan and the entire business must be sold to transform ownership. Another type of business in the US is partnership it’s the same as sole proprietorship but is owned by more than one owner. There are two forms of partnership general partnership and limited partnership. A general partnership is where the partners share unlimited liabilities for all debts and shared gains and losses. The gains and losses are split according to a partner agreement which may be a formal document or informal. The mini partnership on the other hand has one or more person…

    • 744 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Business Structure Advice

    • 679 Words
    • 3 Pages

    The sole proprietorship, the partnership, the corporation, and the LLC/LLP are the four basic practices in which for-profit businesses can be organized. Practices have associated advantages, disadvantages, and tax consequences. A sole proprietorship is the most stress-free and low-cost business stricter of the three. The business owner has total control over their business as a sole proprietorship; this partnership is usually not a married couple. The advantage it is easy to start up and the disadvantage is the owners are held legally…

    • 679 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    | Two disadvantages of a proprietorship are (1) the relative difficulty of raising new capital and (2) the owner's unlimited personal liability for the business' debts.…

    • 4893 Words
    • 20 Pages
    Satisfactory Essays
  • Good Essays

    You Decide

    • 465 Words
    • 2 Pages

    There are 4 forms of organization that are available for any individuals or partners that want to start a business of their own. The 4 forms of organization are Sole Proprietorship, Partnerships, Corporations and Limited Liability Company. Each of these organizations operate differently with advantages and disadvantages to it.…

    • 465 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    It is important that the business owner seriously considers the different forms of business organization — types such as sole proprietorship, partnership, and corporation. Which organizational form is most appropriate can be influenced by tax issues, legal issues, financial concerns, and personal concerns. This essay explains the general impression of business organizations.…

    • 943 Words
    • 4 Pages
    Powerful Essays
  • Good Essays

    There are three forms of business: sole proprietorship, partnership, and corporation. There are many advantages and disadvantages in the different forms of business in relation to my business venture. To begin with, as sole proprietor, I wouldn’t work under anyone and could be my own boss. I could make up the rules and could develop what I wanted based on my own ideas. However, considering I do not have the funds, it would be extremely difficult knowing that I would be “personally liable (or responsible) for all debts of the business” (AIU Online, 2010).…

    • 739 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    The first two of these basic forms - sole proprietorship and partnership - represent the personal relationship of a man or a group of men to the business; but the third form, which is a comparatively modern invention, separates the owner or owners from the business and brings into being an impersonal, intangible thing - a corporation - in which the nominal ownership is vested.…

    • 453 Words
    • 2 Pages
    Satisfactory Essays