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Financial management 6352 Terms

Terms in this set (15)

Proprietorship/Sole Proprietorship
which is an unincorporated business owned by one individual.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 5). Cengage Learning. Kindle Edition.
what are the 3 main advantage of a Proprietorship/Sole Proprietorship
(1) It is easy and inexpensive to start.
(2) Relatively few government regulations affect it.
(3) It pays no corporate income tax on profits—instead, they are included in the proprietor's personal taxable income.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 5). Cengage Learning. Kindle Edition.
what are the 3 main dis-advantage(limitations) of a Proprietorship/Sole Proprietorship
limitations:
(1) It may be difficult for a proprietorship to obtain the funding needed for growth.
(2) The proprietor has unlimited personal liability for the business's debts, which can result in losses that exceed the money invested in the company. (Creditors may even be able to seize a proprietor's house or other personal property!)
(3) The life of a proprietorship is limited to the life of its founder.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 5). Cengage Learning. Kindle Edition.
Partnership Liability
Each partner is personally liable for the debts of the enterprise whether or not she caused them.
Partnership
Partnership agreements define the ways any profits and losses are shared between partners.
organization owned by two or more persons who agree on a specific division of responsibilities and profit
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 6). Cengage Learning. Kindle Edition.a business s
Limited Partnership (LP)
Can only loose the amount of their investment
General Partnership
Have unlimited liability.
However, the limited partners typically have no control—which rests solely with the general partners—and their returns are likewise limited. Limited partnerships are common in real estate, oil, equipment-leasing ventures, and venture capital.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 6). Cengage Learning. Kindle Edition.
a limited liability partnership (LLP) and a limited liability company (LLC), all partners'
members potential losses are limited to their investment in the LLP/LLC.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 6). Cengage Learning. Kindle Edition.
Corporation
A legal entity under state law that is separate and distinct from owners and managers
3 main advantage of Corporation:
(1) unlimited life—a corporation can continue after its original owners and managers are deceased;
(2) easy transfers of ownership interests—ownership is divided into shares of stock, which can be transferred far more easily than ownership in a proprietorship or partnership
(3) limited liability—losses are limited to the actual funds invested.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 6). Cengage Learning. Kindle Edition.
Two disadvantages of a corporation
two disadvantages:
(1) Corporate earnings may be subject to double taxation—the earnings of the corporation are taxed at the corporate level, and then earnings paid out as dividends are taxed again as income to the stockholders.
(2) Setting up a corporation involves preparing a charter, writing a set of bylaws, and filing the many required state and federal reports.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 6). Cengage Learning. Kindle Edition.
Charter
A legal document giving certain rights to a person or company
The charter includes the following information:
information:
(1) name of the proposed corporation,
(2) types of activities it will pursue,
(3) amount of capital stock,
(4) number of directors, and (5) names and addresses of directors.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 7). Cengage Learning. Kindle Edition.
Bylaws
The internal rules of management adopted by a corporation at its first organizational meeting.
corporations. Professionals such as doctors, lawyers, and accountants often form a professional corporation (PC) or a professional association (PA). These types of corporations do not relieve the participants of professional (malpractice) liability.
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (Page 7). Cengage Learning. Kindle Edition.
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