Chapter 11 Flashcards
What is a sole proprietorship
- It is the most ‘basic form’ of business ownership
- It’s used by a ‘one-person business
- Here the business is not a legally separate entity meaning the owner is personally liable for the business
- Difficult for owners to generate/obtain capital to grow the business
What does Proprietor mean?
It means owner and operator of the business
What is a ‘partnership’?
It’s the same concept as sole proprietorship however here there are ‘2’ or more owners.
What is a ‘limited partnership’?
It has two types of partners in this relationship:
- A general partner –> They actively participate to the business and has personal liability
- The limited partner does not actively participate in managing the business and is only liable to the amount invested
How are ‘hedge funds structured’?
- As a limited partnership
What is a ‘general partnership’?
+ All partners have unlimited liability so they are personally liable for the business and actions of all partners. ‘
What is a ‘corporation”
+ The ownership is separate from the management
+ Ownership is transferred by the buying and selling of shares
+ It’s a separate legal entity
How are corporations governed?
- Government act of incorporation
- The corporation’s carter
- By-laws
What are shareholders rights?
+ When the decisions in a corporation are made by the BOD or management
+ Things such as selecting directors, and selling the corporation require shareholder approval
+ If a decision is made 50.1% approval has to come from shareholders
What is a ‘proxy’?
Allows someone else to vote on behalf of the shareholders
What are board of directors
They are elected by shareholders to ensure the corporation’s decisions are in the best interests of shareholders
Where do we usually see the CEO
on the BOD
What is the COB
They oversee chair board meetings and they usually have the most respected power.
What are boards required to have a minimum of?
Independent directors
What are ‘independent directors’
These are directors not apart of management or align with the biggest shareholder
What is the concept of government and corporate financing?
Governments need capital and investors have this
Who facilitates the trade between the two
Investment firms, investment dealers, brokerage firms
What are private placements?
- Sale of corporate debt or equity to private investors
Are private placements available to the public?
NO
How are they managed (private placements)
By investment dealers
What are ‘public offerings’
This is the sale of securities to the public
+ This process is managed by investment dealers
What is prospectus’ used for public offerings?
+ Sets the terms of the public offering and is a lengthy document
+ Includes time, price, what the proceeds are used for
what is a ‘green sheet’?
+ Used as a marketing document for the offering by an investment dealer to sell the offering
What is an initial public offering?
It is the sale of a corporation equity on the stock exchange for the first time
How is the share price determined for an IPO?
The investment dealer does an extensive investigation on a company’s operations and its financial viability and from here they make future projections and make a total value of the company estimate
Will all shares be sold on the IPO
no only a %
How do you find the price of shares
price = total value / number of shares
What does ‘build a book’ mean?
+ ID will gather the intrest prices for the stock and put in a book
How do they set the value per share?
They set it
1) high enough to maximize proceeds for the corporation
2) Low enough to ensure all shares are sold.
What does it mean when shares are ‘secondary issues”
Issues of equity after the IPO
Who gets the proceeds of from the sale of stock?
If the sale is newly issued (IPO), the corporation gets the proceeds
If the sale is from existing shares on the market then the investor who sells gets it
How are secondary issues done?
A short-form prospective distribution system (SFPD)
SFPD?
Its when a company issues short-form prospecus which are much shorter than an IPO’s
When do we SFPD’s?
Usually for ‘bought deals’
