Chapter 1 Flashcards
sole proprietorships
a business owned and run by 1 person. The company pays no taxes but owner is liable for paying taxes on profits
partnership
similar to sole prop. just more people
limited partnership
has two kinds of owners a)general b)limited (the limited partner has a liability to debts but can’t manage)
limited liability company
hybrid entities that combine characteristics of partnership and corporation. (no double taxation)
Public/private LLC
one is allowed to trade their shares on an exchange whereas the other cant
Corporation
is a legally defined, artificial being, separate from its owners. The corporation is solely responsible for its obligations.
hence why it has tax obligations in addition to those paid by its owners
Financial manager’s 3 main tasks
- make invesment decions
- make financing decisions
- manage cash
The goal of the financial manager
to maximize the wealth of shareholders (the stock price)
Board of directors
- have the ultimate decision-making authority in the corporation
- rule setting
- elected by the shareholders
Chief Financial Officer
established the set of policies the board of directors has set.
Agency problem
The temptation of the managers to put their own self-interest ahead of the interests of the shareholders
Hostile takeover
when an individual or firm buys a large fraction of a corporations stock and gets enough votes from the Board of directors to rid the CEO.
Stonk market
(aka stock exchange) is an organized market in which owners of public corporations can trade shares
Primary markets
where companies originally sell their shares and the market where they raise capital.
Secondary markets
once purchased from the primary markets this is where investors exchange shares.
