Alternative Forms of Business organization torshi P ■Ad Ease of formation Subject to fe ulations No corporate income taxes Disadvantage Limited life Unlimited liability Difficult to raise capital A partnership has roughly the same advantages and disadvantages as a ole proprietors 2013-2-25 1-5
2013-2-25 1-5 Alternative Forms of Business Organization • Sole proprietorship Advantages: ¾Ease of formation ¾Subject to few regulations ¾No corporate income taxes Disadvantages: ¾Limited life ¾Unlimited liability ¾Difficult to raise capital • Partnership A partnership has roughly the same advantages and disadvantages as a sole proprietorship. • Corporation
Corporation Advantages Unlimited li Easy transfer of ownership ■ Limited liability Ease of raising capital Disadvantages: ■ Double taxation Cost of set-up and report filing Difficult to define a Separation of Management and Ownership 2013-2-25 1-6
2013-2-25 1-6 Corporation • Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital • Disadvantages: Double taxation Cost of set-up and report filing • Difficult to Define: Separation of Management and Ownership
Corporate Structure Sole proprietorships Unlimited liability Personal tax on profits Partnerships Limited liability Corporations Corporate tax on profits Personal tax on dividends
2013-2-25 1-7 Corporate Structure Sole Proprietorships Corporations Partnerships Limited Liability Corporate tax on profits + Personal tax on dividends Unlimited Liability Personal tax on profits
Goals of the corporation The primary goal is shareholder wealth maximization, which translates to maximizing stock price. Should firms behave ethically? YES! Do firms have any responsibilities to society at large? YES! Shareholders are also members of society 2013-2-25 1-8
2013-2-25 1-8 Goals of the Corporation • The primary goal is shareholder wealth maximization, which translates to maximizing stock price. Should firms behave ethically? YES! Do firms have any responsibilities to society at large? YES! Shareholders are also members of society
Course objective The objective: provide you with an understanding of the basic theory and the tools necessary to make good financial decisions Finance is really about value ■Fims Projects and real investments ■ Securities Central question How can we create value through investment and financing d eciSions 2013-2-25 1-9
2013-2-25 1-9 Course Objective • The objective: provide you with an understanding of the basic theory and the tools necessary to make good financial decisions. • Finance is really about value Firms Projects and real investments Securities • Central question How can we create value through investment and financing decisions?