FNCE 317 Study Guide - Winter 2019, Comprehensive Final Exam Notes - Unlimited Company, Transaction Cost, 2G

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Published on 30 Nov 2019
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Chapter 1: The corporation
Three types of firms
o Sole proprietorship: Firm and owner have no separation with respect to taxes,
default, life
Small in revenue, profits and employees
For most disadvantages >>> advantages
Easy to set up
Combined with regular personal taxes
Personal equity & debit with personal guarantee
Limited, difficult to transfer ownership
Small grocery store
o Partnership
More than one owner
Income split, unlimited personal liability to the owners
Reputation based
Pooled equity
Ends upon death of any partner
Law firm
Goldman Sachs
o Corporation
Legal entity, separate and distinct from owners
Responsible for it's own obligations, contracts, assets
Divisible, transferable equity & debt to the corporation
Continuous life
Walmart
Types of partnership
o Limited partnership-two level
General partners and limited partners
General partners
Fully liability
Limited partners
Limited liability to their investment
Put their money in but not liable in anything went wrong
o Limited liability partnerships - based in Canada-Newer
Accounting and legal profession
General partners
Limited liability, but able to run business
Unlimited liability
Negligence in your area
Ownership of a corporation
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o Stock
o Equity
All oustanding shares
Equity holder/shareholder/stockholder
Dividends
Entitles to but not obligated to receive
Voting rights proportional to ownership %
Issues with ownership
o Dominant shareholders
25% of the equity
After that they regulate how much stock you can buy
o Multiple classes of shares
Class A and Class B
Different voting rights but same dividend rights
o Hostile takeovers
Purchase large amount of stock to replace management via voting rights
Influence a company's strategy to buy at a good price and make it more
attractive to increase value of stock
o Bankruptcy
Fails to repay your debt--> debt holder can seize the assets
Ownership changes from equity holders to debt holders
Stakeholders
o Debt holders
Investors
Not in control unless bankruptcy
o Suppliers
o Government
o Community etc.
Interest
o Value maximization
Corporate bankruptcy
o Debt obligations
Difference Bankruptcy (liabilities>Assets) vs Illiquid (Insufficient Cash)
o Sequence of events
Renegotiate with debt holders or raise equity or sell assets
File for bankruptcy protection
Companies creditors
If this fails, now the company is bankrupt, control to debt holders
In liquidation, this usually involves shutting down and selling assets
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