FIN1FOF FUNDAMENTAL OF FINANCE

FIN1FOF FUNDAMENTAL OF FINANCE

Get assignment help for this at assignment4finance@gmail.com

2.0 BODY-FACTS

2.0.1
A .Sole Proprietorship

A sole proprietorship is an unincorporated business owned by one individual. Going into business as a sole proprietorship is easy – one merely begins business operations. However, even the smallest businesses normally must be licensed by a governmental unit. If sole proprietor is sued, he/she can lose not only all that he/she invested but also their personal assets (house, car and etc). i. Advantages:

a) Easy to start up the company

b) Is in full control of the business

c) Tax at personal level

d) Receive all income

e) It is subject to few government regulations

ii. Disadvantages:

a) Unlimited personal liability for the business’s debts, which can result in losses that exceed the money they have invested in the company. b) It is difficult for

 proprietorships to obtain large sums of capital c) The life of a business organized as a proprietorship is limited to the life of the individual who created it. →Example: Redai Runcit Chee Meng

Further  we  will discuse  in next  chapter
B. Partnership companies

A partnership is a legal arrangement between two or more people who decide to do business together. Partnerships are similar to proprietorships in that they can be established easily and inexpensively, and they are not subject to the corporate income tax. Each general partner has equal responsibility and authority to run the business. The actions of one partner can bind the entire partnership. Type of partnership

It will also help in your study;Essay on Window Dressing Of Financial Account Is Fraudulent
                                                Essay on Stocks Are Financial Instruments

1) General Partner –Runs the business and face unlimited liability for the firm’s debt. 2) Limited Partner – Liable only up to amount invested.

i. Advantages

a) Low cost and case of formation

.
b) Provide wider access to capital

.
c) A partnership may benefit from the combination of complementary skills of two or more peoples. There is wider pool knowledge, skills and contact. ii.

 Disadvantages
1) Need to consult partners to set up the partnership.

2) Unlimited liability

3) Limited life of the organization

4) Difficulty of transferring ownership

→Example: Kedai Makan Anlson & Endy

C. Public Listed and Non Listed Companies

Public Listed Companies

Public listed companies is a limited liability company that offers its securities (stock/shares, bonds/loans, etc.) for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets. Public companies, including public limited companies, must be listed on a stock exchange depending on their size and local legislation. i. Advantages

a) Able to raise funds and capital through the sale of their securities, whether debt or equity. ii. Disadvantages

a) No requirement to publicly disclose much

→ Example: GLV Company -GLV Inc. is a leading global provider of water treatment solutions, under the Ovivo brand, as well as technological solutions used in pulp and paper production. It operates in some 30 countries with approximately 2,300 employees. GLV is a public company whose shares trade on the Toronto Stock Exchange (TSX) under the ticker symbols GLV.A and GLV.B; it is a constituent of the S&P/TSX Clean Technology Index. Non Listed Companies

Non listed companies are a company that can have an unlimited number of shareholders to raise capital for any commercial venture. Companies which are not listed publicly are more likely to engage in profit maximizing behavior as their share capital structure makes it very easy to give its members financial returns. → Example: IPO Company- IPO is the abbreviated form of initial public offering. This is the process by which large private companies or unlisted public companies want to raise their profile and capital by issuing shares to the public for the first time. This is done by listing the shares on a stock exchange of their choice 2.0.2

A. Preference Shares

Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas common stocks do not. And unlike common shareholders, preference share shareholders usually do not have voting rights. B. Factoring

Factoring is a financial transaction in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. In "advance" factoring, the business owner sells his receivables in the form of invoice to the factor, which makes an advance of 70-85% of the purchase price of the receivable amount. The factor collects the full amount from the customer in due course and pays the balance amount due to the business owner after deducting his commission and other charges. In "maturity" factoring, the factor makes no immediate advance on the purchased accounts, but sees to it that the customer pays the invoiced amount within the stipulated time i.e. on maturity. However, if the customer fails to make payment within the stipulated time e.g. 30 days, the factor makes payment to the client and proceeds to collect the payment from the customer.

C. Leasing

Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. The lessee is the receiver of the services or the assets under the lease contract and the lesser is the owner of the assets. The relationship between the tenant and the landlord is called a tenancy, and can be for a fixed or an indefinite period of time (called the term of the lease). The consideration for the lease is called rent. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from lawnmowers and washing machines to handbags and jewelry. 2.0.3

Money market as an investment instrument

Money markets are the markets for short term, highly liquid debt securities .The financial markets in which funds are borrowed or loaned for short period (less than one year). The New York, London, and Tokyo money market are among the world largest. Characteristics

Money market instruments give businesses, financial institutions and governments a means to finance their short-term cash requirements. Three important characteristics are: i. Liquidity - Since they are fixed-income securities with short-term maturities of a year or less, money market instruments are extremely liquid. ii. Safety - They also provide a relatively high degree of safety because their issuers have the highest credit ratings. iii. Discount Pricing- A third characteristic they have in common is that they are issued at discount to their face value. 2.0.4

Bonds as an investment instrument

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, and sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond on the second market the bond is highly liquid.

Thus a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or short term commercial paper are considered to be money market instruments and not bonds: the main difference is in the length of the term of the instrument.

Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e. they are investors), whereas bondholders have a creditor stake in the company (i.e. they are lenders). Being a creditor, bondholders have absolute priority and will be repaid before stockholders (who are owners) in the event of bankruptcy. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks are typically outstanding indefinitely. An exception is an irredeemable bond, such as Consuls, which is perpetuity, i.e. a bond with no maturity. 2.0.5

Common Share as an investment instrument

Common stock is a form of corporate equity ownership, a type of security. The terms "voting share" or "ordinary share" are also used frequently in other parts of the world; common stock being primarily used in the United States. It is called "common" to distinguish it from preferred stock. If both types of stock exist, common stock holders cannot be paid dividends until all preferred stock dividends are paid in full. In the event of bankruptcy, common stock investors receive any remaining funds after bondholders, creditors (including employees), and preferred stock holders are paid. As such, common stock investors often receive nothing after a bankruptcy. On the other hand, common shares on average perform better than preferred shares or bonds over time. Common stock usually carries with it the right to vote on certain matters, such as electing the board of directors. However, a company can have both a "voting" and "non-voting" class of common stock. Holders of voting common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors. Some holders of common stock also receive preemptive rights, which enable them to retain their proportional ownership in a company should it issue another stock offering. There is no fixed dividend paid out to common stock holders and so their returns are uncertain, contingent on earnings, company reinvestment, and efficiency of the market to value and sell stock. Additional benefits from common stock include earning dividends and capital appreciation.

3.0 RECOMMENDATIONS/OPINION
We will suggest that if the owner chooses to become Sole proprietorship on her/his company, because the owner can receive all the profit of the business not needs to share with the partners or other. Compare with the Partnership, the companies will take a low cost and ease of formation. With more than one owner, the ability to raise funds may be increase; two or more owner may be able to contribute more funds because their borrowing capacity may be greater. Preference Shares will let the preference shareholders do not possess the voting right in the personal matters of the company. There is thus no interference in general by the preference shareholders, even though they gain more profits and advantages over the common shareholders. On the other hand, Factoring is a way to finance requirement of working capital of the company in respect of receivables. It provides a large and quick increase in cash flow of the business. In addition, Leasing will make the owner Lower costs (initial and monthly) than purchasing and Allows savings or investment in short-term capital needs. Besides that, Money market as an investment instrument is the Better interest rate returns can be obtained than keeping money in a current account. The higher the amount invested, the higher the rate of return. Bonds as an investment instrument is the biggest advantage of investing in bonds is that there are very less chances that you will lose out on your investment. So, people who do not believe in taking undue risks with their money should invest in bonds. People, who are nearing retirement and thus, cannot afford to risk their hard-earned money, will find dependable bond investments very suitable. Lastly, Common share investments offer lower legal costs, which appeals to founders/management, friends and family, and angel investors, particularly when the size of the financing round is small. However, they may not appeal to outside investors seeking better upside potential on cash invested in a business.

Some related links are  here;Essay on Credit Risk And The Financial Crisis

4.0 CONCLUSION

In conclusion, we understand the mean of sole proprietorship, partnership and public listed and non listed company. A sole proprietorship is an unincorporated business owned by one individual. Going into business as a sole proprietorship is easy – one merely begins business operations. Then, partnership is a legal arrangement between two or more people who decide to do business together. Public listed companies is a limited liability company that offers its securities (stock/shares, bonds/loans, etc.) for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets compare to the Non listed companies, Non listed companies are a company that can have an unlimited number of shareholders to raise capital for any commercial venture. We also try to know about the detail of Preference Shares, factoring and leasng.firstly, Preference shares typically pay a fixed dividend, whereas common stocks do not. However, if the customer fails to make payment within the stipulated time e.g. 30 days, the factor makes payment to the client and proceeds to collect the payment from the customer. In addition, Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. We also discuss the Investment instrument in three aspects; there are money market, bonds, and common share. Money markets are the markets for short term, highly liquid debt securities .The financial markets in which funds are borrowed or loaned for short period (less than one year). Bond is an instrument of indebtedness of the bond issuer to the holders. Common stock is a form of corporate equity ownership, a type of security.