Question

1.What are the three major forms of business organizations?

2.

What operations or actions can't a financial manager or employee do to maximize shareholder wealth?

Answer 1

Ans. 1

The forms of the organization play a vital role in the operation of the organization. There are three major forms of the business organizations.

1. Proprietorship-- A Proprietorship firm which is owned and controlled by an individual. It is easy to established in comparison of other forms of the organization. It is more useful for the small business. Major benefits of proprietorship business are as follows: 1) Easy formation 2) lower income tax 3) limited government regulation.

2. Partnership-- Partnership is an agreement which is made between two or more persons to carry on a business. It is also easy to established like proprietorship firm. Under the partnership form of organization, Profits are shared between partners in profiting sharing ratio as mentioned in the partnership deed.

3. Corporation-- A corporation is a separate legal entity which is created by a statue. It has common seal and also distinct from the managers and owner. Under this form of the business, the member has limited liability so that a large capital shall be arranged easily by way public offer. Major drawback for corporation is income tax rate. It is higher in comparison of proprietorship and partnership tax rate.

Ans. 2

The basic goal of any corporation is to maximize the shareholder wealth. Hence, management of a corporation primary goal is shareholder wealth maximization, but on the other hand, managers understand that this does not mean maximization of shareholder wealth at any cost.

Managers should work and perform their duty ethically. They must follow the rules and regulations. On the other hand if  managers worked beyond the rules and regulation then as a result corporation will face penalty imposed by the government and that will reduced the market reputation and value of the shareholder wealth.

Hence, we can say that a financial manager or employee can't do those operations or actions which are beyond the rules.