Mang 6480 - Study Guide
REVIEW QUESTIONS FOR TEST 1
(MULTIPLE CHOICE, SHORT ESSAY, FILL-IN-THE-BLANK ETC.)
LECTURE 1
A. List the three basic forms of business organizations. PROPRIETORSHIP (about 75% of all businesses) - Ownership is by one person, who operates for his/her own profit.
a) Strengths (1) Owner receives all profits and/losses (2) Low organizational costs (3) Single tax—individual (4) Independence (5) Secrecy
b) Weaknesses: (1) Unlimited Liability (2) Limited fund-raising power (3) Lacks continuity
PARTNERSHIP (about 10% of all businesses) - A partnership consists of two or more owners doing business together for profit.
a) Strengths (1) Can raise more funds than sole proprietorship (2) More management skill (3) Individual tax rate
b) Weaknesses (1) Unlimited Liability (2) Discontinuity (3) Difficulty in Transferring
CORPORATION - A corporation is a legal entity, which can sue and be sued, make and be party to contracts, and acquire property in its own name
a) Strengths (1) Limited liability (2) Transferability of ownership (3) Continuity (4) Greater fund-raising capability
b) Weaknesses (1) Double Taxation (2) More expensive to organize (3) Subject to greater regulation (4) Lacks secrecy
1. What is the most important problem with corporations in comparison with the other two business forms?
B. Discuss how a company goes public.
1. What is the difference between best effort and underwriting? In a best efforts sale, the bank does not guarantee that the securities will be sold or that the company will get the cash it needs, only that it will put forth its “best efforts” to sell the issue. On an underwritten issue, in contrast, the company does get a guarantee: the bank agrees to buy the entire issue and then resell the stock to its customers. Therefore, the bank bears significant risks in underwritten offerings.
2. Describe the registration
(MULTIPLE CHOICE, SHORT ESSAY, FILL-IN-THE-BLANK ETC.)
LECTURE 1
A. List the three basic forms of business organizations. PROPRIETORSHIP (about 75% of all businesses) - Ownership is by one person, who operates for his/her own profit.
a) Strengths (1) Owner receives all profits and/losses (2) Low organizational costs (3) Single tax—individual (4) Independence (5) Secrecy
b) Weaknesses: (1) Unlimited Liability (2) Limited fund-raising power (3) Lacks continuity
PARTNERSHIP (about 10% of all businesses) - A partnership consists of two or more owners doing business together for profit.
a) Strengths (1) Can raise more funds than sole proprietorship (2) More management skill (3) Individual tax rate
b) Weaknesses (1) Unlimited Liability (2) Discontinuity (3) Difficulty in Transferring
CORPORATION - A corporation is a legal entity, which can sue and be sued, make and be party to contracts, and acquire property in its own name
a) Strengths (1) Limited liability (2) Transferability of ownership (3) Continuity (4) Greater fund-raising capability
b) Weaknesses (1) Double Taxation (2) More expensive to organize (3) Subject to greater regulation (4) Lacks secrecy
1. What is the most important problem with corporations in comparison with the other two business forms?
B. Discuss how a company goes public.
1. What is the difference between best effort and underwriting? In a best efforts sale, the bank does not guarantee that the securities will be sold or that the company will get the cash it needs, only that it will put forth its “best efforts” to sell the issue. On an underwritten issue, in contrast, the company does get a guarantee: the bank agrees to buy the entire issue and then resell the stock to its customers. Therefore, the bank bears significant risks in underwritten offerings.
2. Describe the registration