Untitled Quiz

Study Notes

Types of Business Entities:
- Sole Proprietorship: Owned by one person, who manages the business.
- Partnership: Relationship between two or more people to conduct business, sharing profits and losses.
- Corporation: A separate legal entity, distinct from its owners, having rights and duties similar to a person. It owns assets, owes liabilities and pays income taxes.
Types of Corporations (by Ownership):
- Privately Held (Closely Held):
- Publicly Held:
Characteristics of Corporations:
- Separation of Ownership and Management: Corporation is distinct from its owners.
- Limited Liability of Shareholders: Shareholders' liability is limited to their investment.
- Transferable Ownership Rights: Shares can be transferred easily.
- Continuous Life: Not affected by death, withdrawal or incapacity of shareholders.
- Ease of Raising Capital: Issuing stock enables easy capital raising.
- Indirect Management: Shareholders manage indirectly through elected board of directors.
- Government Regulations: Corporations must adhere to governmental regulations (business laws) like share issuance and dividend distribution.
- Double Taxation: Corporations pay taxes on their income, and shareholders may pay taxes on dividends.

Initial Step: Filing application with the government.
Application Information:
- Company's name and purpose
- Authorized shares (amount, type, and number)
- Incorporators (founders) and their shares
Charter (Certificate of Incorporation): Legal recognition as a corporation.

Common Stock (Ordinary Shares): Basic ownership interest, bearing ultimate risk.
Preferred Stock (Preference Shares): Priority over common stock in dividends (usually at a stated value or percentage). May lose voting rights.

Equity Definition: Residual interest in corporate assets after deducting liabilities.
Categories:
- Contributed Capital (Paid-in Capital): Initial capital contributions by shareholders.
- Earned Capital (Retained Earnings): Capital generated by profitable operations.

Direct/Indirect Issuance: Directly to investors (closely held) or indirectly through an IPO (initial public offering)
Factors in Setting Stock Price:
- Expected future earnings
- Expected dividend rate
- Current financial position
- Securities exchange market state
- Local economy state

Authorized Shares: Maximum number of shares a corporation is authorized to issue (shown in incorporation charter).
Issued Shares: Number of shares distributed to shareholders.
Treasury Shares: Shares reacquired by the corporation to reduce the number of outstanding shares.
Outstanding Shares: Number of issued shares less treasury shares.
Par Value Shares: Shares assigned a value per share in the certificate of incorporation.
No-Par Value Shares: Shares not assigned a stated value in the certificate of incorporation. In some countries, the board can assign a value.
Par value and stated value notes: The par value of a share represents a legal minimum capital; par and stated value do not reflect market value.