BFN 110 Lecture Notes - Lecture 2: Tunxis Community College, Limited Liability, Financial Statement
6 Jan 2021
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Document Summary
Distinguish the advantages/disadvantages of various forms of business organisation. Single owner, unlimited liability, success/failure relies on the owner, lasts as long as the owner is alive or sells. Advantages: easy and inexpensive to establish, minimal reporting requirements. Similar to sole trade except several individuals, all share in gains and losses. Characterised by a partnership agreement, if one wants to leave partnership ends. Separate legal entity, unlimited life, only a small no. of companies are listed. Advantages: limited liability for shareholders, superior form when raising capital. Objectives of mgmt. may differ from shareholders. Managers may be satisfiers rather than maximisers. Mgmt. play it safe, rather than maximising the value of the firm. Introduces a potential conflict agency problem. It is a contractual relationship between a person (the agent) who is authorised to act on behalf of another (the principal) Agent can create legal relationship with 3rd party. Expressly in writing or verbally, or implied by law.
