BUS 600 - Week 7 Assignment # 1 -> Chapter 6 Finance

3 - 6 ideas from Chapter 6 - Finance

1.       There are three basic legal business structures in United States:

·         Proprietorships

It is formed by an individual who runs the company without any separation of his or her personal wealth and that of the firm. The advantage is that it is easy to form and there is no double taxation, the drawbacks are that it is nontransferable, has a limited life, and the proprietor has unlimited liability.

·         Partnerships

A partnership is little more than a proprietorship with multiple proprietors. The ownership is nontransferable, the organization has a limited life, and investors still have unlimited liabilities.

There are two types of partnership. In a general partnership, active owners, called general partners, have unlimited liability for all business debts. In a limited partnership structure, limited partners are shielded to the extent of their investment.

·         Corporations

The assets and liabilities of the entity are owned by the corporation, not by the owners of the corporation. The corporation has an unlimited life, must pay taxes (double taxation);  is considered to be separate from its owners.

There are variations to the corporate form – S-Corps and Limited Liability Companies (LLC). S-Corps are corporations (have fewer than 35 shareholders) that pass through the earnings to their investors. The investor must then pay the tax. This gets around double taxation while maintaining the limited liability benefits of a corporation.

LLC are in some ways the best of both worlds. They allow for limited liability but also allow the tax benefits of the S-Corp without the restrictive qualifications of the S-Corp. These are relatively new and only allowed in certain states.

2.       Investment Valuations

Investment valuation can guide in making informed decisions about what to buy or sell. It is the valuation of investments that help in determining whether a particular investment is a prudent, intelligent, worthwhile investment. It is an established fact that equity assets in comparison to debt assets to provide growth and hedge against inflation.

3.       Mergers and Acquisitions (M&A)

The reason for a firm to do M&A:

·         Diversify the company

·         Improve sales and Earnings

·         Purchase an Undervalued Company

·         Lower Operating Cost

The most common situations after a M&A – (a)  Wage Concessions, (b) Layoffs, (c) Lower Production Costs, (d) Reduce Working Capital Needs.