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Corporate (Corporations (own legal person vs. "natural" person…
Corporate
Corporations (own legal person vs. "natural" person [human], owned by shareholders (don't have to be individuals, could be could be institutional investors, i.e. mutual funds)
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Advantages: 1. Limited Liability; 2. Permanence; 3. Ease of Transfer of Ownership (if public, shareholders just sell stock); 4. Large Amounts of Financial Capital; 5. Specialized Management
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Board of Directors: Elected by shareholders, not day-to-day management, hires major employees (CEO, VP, etc.). Has fiduciary duty (no conflicts of interest)
Disadvantages: 1. Complexity and Expense of Formation (have to keep minutes); 2. Operating Across Jurisdictions (hard); 3. "Double" taxation; 4. More Paperwork and More Regulation; 5. Possible Conflicts of Interest (boards)
Common Stock: 1. Shareholders have voting rights (shareholder meetings); 2. Right to Dividends (Profits); 3. Capital Gains/Losses; 3. Right of first refusal (counter dilution effect); 4. Right of residual claim on assets (in case of liquidation or bankruptcy)
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Partnerships (2+ people)
General Partnerships
Advantages: 1. Ability to Pool Financial Resources; 2. Share Responsibilities and Complementary Skills; 3. Ease of Formation; 4. Possible Tax Advantage
Disadvantages: 1. Unlimited Liability; 2. Potential for Disagreements; 3. Difficulty in Withdrawing from a Partnership; 4. Lack of Continuity (if a partner withdraws)
Limited Partnerships
At least one general partner and one limited partner (both contribute financially and share profits)
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Limited partners: Contribute an investment, but can only lose as much as they invested (limited liability) (can't be active in managing the business, or else become general partner).
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Sole proprietorship (extension of owner, single individual)
Advantages: 1. Ease of formation (simple, inexpensive); 2. Retention of Control; 3. Pride of Ownership; 4. Retention of Profits; 5. Possible Tax Advantage (no double taxation)
Disadvantages: 1. Unlimited Liability; 2. Limited Financial Resources; 3. Limited Ability to get Good Employees; 4. Heavy Workload + Responsibilities; 5. Lack of Permanence
Mergers (combinations of equals, 1+1=3) & Acquisitions (eat the weak) to improve efficiency, growth, and competitive advantage
Mergers: 1. Horizontal (same industry); 2. Vertical (buyer-seller relationship); 3. Conglomerate merger (unrelated industries)