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FECON 4.30


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pass through
means business income would only be taxed once at the owner's personal income tax level.
legal forms evaluated
an owner of proprietorship loses liquidity and faces high risk. Large professional service organizations often are organizaed as partnership. In recent years some of the large consulting fims have converted to publicly traded corporations to take advantage of capital funds from publicly traded exchanges. s corporations were created in 1959 to help small business. The number of shareholders are limited to no more than 100. In practice the shareholders/managers and the baords in small s corporations are the same people. c corporations have no restriction on number and type of shareholders making themeasy to raise capital.
shares of closely held corporations
are held by a few shareholders and are not freely traded, while shares of publicly traded corporations are held by the general public and are exchange traded. Reorganization of publicly traded corporations to closely held corporations typically enjoy positive stock returns upon the announcement. Such reorganization initiated by the existing management is called management buy out and if it is financed by debt it is called a leverage buy out Kohlberg Kravis Roberts and Co is an example of buy out specialist
Some corporations have dual class voting shares
where one class of share has primary claim to the residual profits and few voting rights, while the other class of share has smaller claim to the residual profits byt retains mor eof the voting rights, EX Google, typical limited voting right stock sells at a discount of over five percent relative to its superior voting right counterpart.
corporate governance
refers to organization structure of a firm to monitor and direct the performance of the firm. EX is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.
There are 5 internal control mechanisms
to limit agency problems in publicly traded corporations: large shareholders (blockholders), shareholder voting (proxy contest), board of dierctors with outsiders, management compensation where straight salary account for only twenty percent of total compensation, and (internal and external) auditing. EX Food Corporation of India has all this especially The Internal Audit wing of the Corporation is functioning on all India Basis under the overall supervision of Executive Director (IA), who is directly reporting to the Managing Director.

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