copy of COB 300 Finance Exam 1 - Eliz Ozcan ACTUAL UPDATED QUESTIONS
AND CORRECT ANSWERS
forms of business organization sole proprietorship, partnership, corporation
, sole proprietorship - Single owner keeps all profits, easiest to start, taxed once, least regulated,
- unlimited personal liability, difficult to sell ownership interest, limited to life of
owner, equity capital limited to owners personal wealth
partnership - two or more owners, more capital available, taxed once
- unlimited liability, dissolves when a partner leaves, difficult to transfer ownership
corporation def -owners=shareholders who elect board of directors
-separation of management and ownership, gov structure of large companies
- 3 main types C-corp, S-corp, LLC
-B corp gaining popularity
C-corperation A C-corp is a legal structure for a corporation in which the owners, or
shareholders, are
taxed separately from the entity.
S-Corperation A special designation that allows small businesses that meet qualifications to be
taxed as if
they were a proprietorship or a partnership
- Do Not pay Federal Income Taxes, income passed through to shareholders,
Limited Liability, Perpetual Life
- limited to max 100 shareholders, ability to raise capital limited
LLC a popular type of organization that is hybrid between a partnership
and a corporation
- Do Not pay Federal Income Taxes, Income passed through to
shareholders, Limited Liability, No Limit to Shareholders, Perpetual Life
- Separation of Owners & Managers, Ability to raise Capital limited
corporation adv/disadv - unlimited life, separation of ownership+mgnmt, easy to raise capital, limited
liability, ownership transfer is easy
- double taxation, seperation of ownership and mngmt
goals of the business enterprise main goal: increase the value of the firm
- balancing interest of shareholders and society
Agency relationship and problem - Principal hires an agent to represent his/her interests, Stockholders (principals)
hire managers (agents) to run the company
- Conflict of interest between principal and agent, agency conflict is a conflict of
interest because agents are supposed to act in principles best interest
AND CORRECT ANSWERS
forms of business organization sole proprietorship, partnership, corporation
, sole proprietorship - Single owner keeps all profits, easiest to start, taxed once, least regulated,
- unlimited personal liability, difficult to sell ownership interest, limited to life of
owner, equity capital limited to owners personal wealth
partnership - two or more owners, more capital available, taxed once
- unlimited liability, dissolves when a partner leaves, difficult to transfer ownership
corporation def -owners=shareholders who elect board of directors
-separation of management and ownership, gov structure of large companies
- 3 main types C-corp, S-corp, LLC
-B corp gaining popularity
C-corperation A C-corp is a legal structure for a corporation in which the owners, or
shareholders, are
taxed separately from the entity.
S-Corperation A special designation that allows small businesses that meet qualifications to be
taxed as if
they were a proprietorship or a partnership
- Do Not pay Federal Income Taxes, income passed through to shareholders,
Limited Liability, Perpetual Life
- limited to max 100 shareholders, ability to raise capital limited
LLC a popular type of organization that is hybrid between a partnership
and a corporation
- Do Not pay Federal Income Taxes, Income passed through to
shareholders, Limited Liability, No Limit to Shareholders, Perpetual Life
- Separation of Owners & Managers, Ability to raise Capital limited
corporation adv/disadv - unlimited life, separation of ownership+mgnmt, easy to raise capital, limited
liability, ownership transfer is easy
- double taxation, seperation of ownership and mngmt
goals of the business enterprise main goal: increase the value of the firm
- balancing interest of shareholders and society
Agency relationship and problem - Principal hires an agent to represent his/her interests, Stockholders (principals)
hire managers (agents) to run the company
- Conflict of interest between principal and agent, agency conflict is a conflict of
interest because agents are supposed to act in principles best interest
