The Corporation/Introduction to Financial Statement Analysis

In: Business and Management

Submitted By tabed087
Words 4000
Pages 16
1. What are the four major types of firm in the U.S, how are they defined, and what are the key differences between them?
I understand from the course text that within the context of corporate finance the four types of firms in the U.S. are sole proprietorship, limited liability companies, partnerships and corporations (Berk & DeMarzo, 2011). These four firms are fundamentally different in their makeup and operations. To begin with a corporation is a legally defined artificial being with legal powers such as the ability to enter into contracts, acquire assets and incur obligations amongst others. I believe that corporations are one of the most recognizable business structures today as their span is wide spread and various corporations are in the news at any given point in time. Essentially they have a separate identity from the owners of the company and there may be many owners who participate as shareholders of a corporation.
From the very name, a sole proprietorship is a business in which there is a single owner who is solely responsible for making business decisions and a partnership consists of two or more individuals who share the responsibility of running the company. A sole proprietorship is the most common form of business organization as it is easy to form and offers the owner complete control. Within a partnership each partner contributes money, property or skill with the expectation to share in the profits and losses of the business.
From a corporate context the limited liability firm is one in which the owner faces a limited liability and pay a proportional limited liability based on their investment into the organization, for instance the firm cannot have a right to personal property of the owner to be used to pay off the company’s debts. I gather from the course text that a firm with limited liability include limited partnerships limited liability…...

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