Chap 1- Wordy!

Question 1

Agency costs

Answer 1

Costs to shareholders when managers don’t run business in their best interest - maximise share price

Question 2

Asymmetric info

Answer 2

One party has more info than another e.g financial accounts - managers could insider trade

Question 3

Sole trader

Answer 3

Owned by 1 person

Personally responsible for debts

Question 4

Partnership

Answer 4

Owned by more than 1
Personally responsible for debts
Partnership agreement- rights, how profits shared

Question 5

Limited liability partnership

Answer 5

Business is separate legal identity - limited to capital in bus
Partnership agreement
Accounting agreement- taxed similar to partnership

Question 6

Public limited company

Answer 6

Separate legal identity
Limited to value of shares (par value)
Annual audited accounts
Articles of association- rights of shared holders rules to run comp
Memorandum of association - intention to form company company
Registered on stock exchange
Share capital > 50,000
Ownership can change without impacting running
Agency problems and info asymmetries