Capital Financing Flashcards
refers to methods you use to raise money in launching your business.
Capital Financing
are those supplied and used by the owners of an enterprise in the expectation that a profit will be earned.
Equity capital or ownership funds
are those supplied by others on which a fixed rate of interest must be paid and the debt must be repaid at a specific time.
Borrowed funds or capital
simplest form of business organization, wherein a
person uses his or her own capital to establish a business and is the sole owner.
individual ownership or sole proprietorship
Advantages of the Individual Ownership
. It is easy to organize. 2. The owner has full control of the enterprise. 3.The owner is entitled to whatever benefits and profits that accrue from the business. 4. It is easy to dissolve.
Disadvantages of the Individual Ownership
1.The amount of equity capital which can be accumulated is limited. 2.The organization ceases upon the death of the owner. 3.It is difficult to obtain borrowed capital, owing to the uncertainty 4. The liability of the owner for his debts is unlimited.
an association of two or more persons for the purpose of engaging in a business for profit.
Partnership
Advantages of the Partnership
.More capital may be obtained by the partners pooling their resources together. 2.It is bound by few legal requirements as to its accounts, procedures, tax forms and other items of operation. 3.Dissolution of the partnership may take place at any time by mere agreement of partners. 4.It provides an easy method whereby two or more persons of differing talents may enter into business, each carrying those burdens that he can best handle.
Disadvantages of the Partnership
1.The amount of capital that can be accumulated is definitely limited. 2.The life of the partnership is determined by the life of the individual partners. When any partner dies, the partnership automatically ends. 3.There may be serious disagreement among the individual partners. 4. Each partners is liable for the debts of the partnership
is a distinct legal entity, separate from the individuals who own it, and which can engage in almost any type of business transaction in which a real person could occupy himself or herself.
corporation
Advantages of the Corporation
1.It enjoys perpetual life without regard to any change in the person of its owners, the stockholders. 2.The stockholders of the corporation are not liable for the debts of the corporation. 3.It is relatively easier to obtain large amount of money for expansion, due to its perpetual life. 4. The ownership in the corporation is readily transferred. 5. Authority is easily delegated by the hiring of managers
Disadvantages of the Corporation
The activities of a corporation are limited to those stated in its charter. 2. It is relatively complicated in formation and administration. 3.There
is a greater degree of governmental control as compared to other types of business organizations.
acquired through the sale of stock. There are two principal types of capital stock: common stock and preferred stock.
The capital of a corporation
represents ordinary ownership without special guarantees of return. Common stockholders have certain legal rights
Common stock
are guaranteed and defined dividend on their stocks. In case the corporation is dissolved, the assets must be used to satisfy the claims of the preferred stockholders before those of the holders of the common stock. Preferred stockholders usually have the right to vote in meetings, but not always.
Preferred stock
