Corporate Issuers

Question 1

Business Structures

Answer 1

Refers to how businesses are set up from a legal and organizational point of view

Question 2

Key Features of Business Structure Include:

Answer 2

• The legal relationship between the business and its owners
• Whether the owners of the business also operate the business, and if not, the nature of the relationship between its owners and operators
• Whether the owner’s liability for the actions and debts of the business is limited or unlimited
• The tax treatment of profits or losses from the business

To understand these features, we can compare them among four commonly used types of business structures: Sole-proprietorships, General Partnerships, Limited Partnerships, and Corporations

Question 3

Sole-Proprietorship

Answer 3

It is a business owned and operated by an individual. Legally the business is an extension of the owner, who is personally responsible for claims against the business (i.e., unlimited liability), including taxes, and has the only claim on the net profits from the business.
Sole Proprietorships tend to be small in scale because they can only expand within the limits of the individual owner’s ability to secure financing

Question 4

General Partnership

Answer 4

Two or More individuals can form a general partnership. In this structure, the partnership agreement specifies each partner’s responsibilities for business operations and their shares of the partnership profits or losses. As with a sole proprietorship, the partners have unlimited liability for claims against the business, and profits from the business allocated to each partner are taxes as personal income.

Question 5

Limited Partnership

Answer 5

Involves two levels of partners. One or more general partners operate the business and have unlimited liability, as in a general partnership, but this structure also has LIMITED PARTNERS, who are liable only for the amount they invest in the partnership (i.e., Limited Liability), and have claims to its profits that are proportionate to their investments. Limited Partners typically are not involved in appointing or removing general partners. How the profits are divided among the general and limited partners is specified in the partnership agreement. Because they are responsible for managing the business, the general partners typically receive a larger portion of profits than the limited partners. Profits allocated to the partners are taxed as personal income to each partner. Most private capital firms and hedge funds are structured as limited partnerships.

Question 6

Corporation (or limited company)

Answer 6

is a legal entity separate from its owners and managers. in this case, all a corporation’s shareholders have limited liability. An owner can lose his entire investment if the company goes bankrupt, and the value of his share goes to zero, but has not legal liability for any further claims against the corporation. A corporation may, but it not required to, distribute its profits to its owners. Most large firms are corporations because that structure gives them the greatest access to capital, both debt (borrowed capital) and equity (ownership capital). Corporations can be for-profit or not-for-profit

Question 7

Borrowed Capital

Answer 7

Money that is borrowed from others to make an investment.

Question 8

Ownership Capital

Answer 8

Equity capital arises from ownership shares in a company and claims to its future cash flows and profits

Question 9

Not-For-Profit Corporation

Answer 9

Is to produce a particular social benefit or pursue a charitable goal on an ongoing basis. A nonprofit corporation may generate profits but must reinvest any profits toward its mission rather than distributing them to owners. Nonprofit corporations are usually not taxed.

Question 10

Profit Corporation

Answer 10

Is one that has shares that are sold to the public and trade in an organized market. Other countries may consider a corporation public if it has at least a designated number of owners, even if its shares are not traded on an exchange or in a dealer market.

Question 11

Private Corporation

Answer 11

A for-profit corporation that does not meet previous definitions

Question 12

Double Taxation

Answer 12

A corporation’s profits may be subject to double taxation if the government taxes companies on their earning and also taxes dividends (which are distributions of earnings to owners) as personal income