1-2 Jobs in Finance PDF

1-2. Jobs in Finance Careers in Finance ​ Finance prepares students for careers in: ○​ Banking (e.g., investment banking, commercial banking) ○​ Investments (e.g., stockbrokers, portfolio managers) ○​ Insurance (e.g., risk analysis, underwriting) ○​ Corpora...

1-2. Jobs in Finance Careers in Finance ​ Finance prepares students for careers in: ○​ Banking (e.g., investment banking, commercial banking) ○​ Investments (e.g., stockbrokers, portfolio managers) ○​ Insurance (e.g., risk analysis, underwriting) ○​ Corporations (e.g., CFO, financial analysts) ○​ Government (e.g., Federal Reserve, SEC, treasury departments) ​ Even non-finance professionals (e.g., marketing, management, accounting) need financial knowledge because most business decisions involve money and profitability. ○​ Example: A marketing team proposes an advertising campaign, but finance professionals must evaluate whether the campaign is profitable. Finance for Personal Decision-Making ​ Finance is crucial for individuals, not just businesses. ​ In the past, most employees received pensions (fixed retirement payments from their employer). ​ Today, pensions are rare, and employees must manage their own retirement savings using defined contribution plans (e.g., 401(k) plans). ○​ Employees must decide: ​ How to invest their savings (e.g., stocks, bonds, mutual funds). ​ How much risk they are willing to take. ​ Understanding finance helps individuals make better investment decisions, ensuring financial security in retirement. Forms of Business Organization The structure of a business affects its legal status, risk, tax treatment, and ability to raise capital.​ There are four main types: 1. Proprietorship (Sole Proprietorship)  ​ Definition: A business owned by one person who is responsible for all operations and finances. ​ Most common type of business in terms of numbers, but small in revenue compared to corporations. Advantages of Proprietorships: 1.​ Easy and inexpensive to start – No complex legal paperwork. 2.​ Minimal government regulations – Fewer legal restrictions than corporations. 3.​ Lower taxes – Profits are taxed as the owner's personal income, avoiding corporate tax. Disadvantages of Proprietorships: 1.​ Unlimited personal liability – The owner is personally responsible for all debts and lawsuits. ○​ Example: If the business is sued for $1 million, the owner might lose their personal savings, car, or house. 2.​ Limited lifespan – The business ends if the owner dies or leaves. 3.​ Hard to raise capital – Banks and investors are reluctant to fund proprietorships because of high personal risk. 🔹 Used mostly for small businesses due to ease of formation. 2. Partnership ​ Definition: A business owned by two or more people who share profits, losses, and responsibilities. ​ Similar to a proprietorship but with multiple owners. Advantages of Partnerships: 1.​ More access to capital – More owners means more potential investment. 2.​ Shared expertise – Different partners bring different skills to the business. 3.​ Avoids corporate taxes – Income is taxed as personal income (like proprietorships). Disadvantages of Partnerships: 1.​ Unlimited liability – If one partner makes a bad decision, all partners are responsible for the business’s debts. ○​ Example: If a partner takes out a risky loan and fails to repay it, the other partners must cover the debt. 2.​ Limited lifespan – The business may dissolve if a partner leaves or dies. 3.​ Difficult to transfer ownership – Unlike corporations, selling a stake in a partnership is complicated. 🔹 Common for professional firms like law, accounting, and consulting businesses. 3. Corporation ​ Definition: A corporation is a legal entity separate from its owners (stockholders). ​ Over 80% of total business revenue comes from corporations, even though they are fewer in number than proprietorships. Advantages of Corporations: 1.​ Limited liability – Stockholders can only lose the money they invested; personal assets are protected. 2.​ Easier to raise capital – Corporations can sell stocks and bonds to attract investors. 3.​ Perpetual lifespan – The business continues even if the founders leave or die. 4.​ Easier transfer of ownership – Stockholders can sell their shares without disrupting the company. Disadvantages of Corporations: 1.​ Double taxation – Profits are taxed at the corporate level, and dividends (profit distributions to shareholders) are taxed again as personal income. 2.​ Expensive and complex to set up – Requires legal paperwork, government filings, and financial reporting. 🔹 Most large companies (e.g., Apple, Microsoft, Amazon) are corporations because of their ability to scale and attract investors. 4. Limited Liability Company (LLC) & Limited Liability Partnership (LLP) ​ Definition: A hybrid between a corporation and a partnership. ​ Gives business owners limited liability protection while avoiding corporate taxes. Advantages of LLCs and LLPs: 1.​ Limited liability – Like corporations, owners are not personally responsible for company debts. 2.​ Avoids corporate taxation – Like partnerships, profits are taxed as personal income. 3.​ Flexible management structure – No strict corporate rules. Disadvantages of LLCs and LLPs:  1.​ More complex than sole proprietorships and partnerships – Legal paperwork is required. 2.​ State laws vary – Some states have stricter regulations on LLCs and LLPs. 🔹 LLCs are common for small-to-medium businesses that want liability protection without the complexity of a corporation. Why Most Businesses Become Corporations Even though proprietorships are more common, corporations generate most of the revenue because they offer: 1.​ Limited liability → Reduces risk for investors. 2.​ Easier access to capital → Can raise large sums of money through stocks and bonds. 3.​ Liquidity → Corporate stocks are easier to sell than ownership in a partnership or proprietorship.