Question

What are the advantages and disadvantages of organizing a business as: one a partnership and two as a corporation?

What are the main tasks performed as a financial manager?

Answer 1

Answer(1):

Partnership- It is a firm or arrangement of two or more partners that come together in a business for a common motive and are personally liable for obligations of partnership firm.

Advantages- Are as following:

• It is easy to form and dissolve.
• Less formalities
• It is easy to run and calculate the profits and other share.
• There are more partners, more capital in the business.
• Ownership and control are combined.

Disadvantages- Are as following:

• Partners have unlimited liabilities, they are personally liable for the partnership firm's debt and other obligations.
• Each partner is an agent and is liable for actions of other partners also.
• If a partner leaves or joins, there is a lot of calculation in capital, profits and assets that may be costly.

Corporation- It is a separate legal entity formed by shareholders and established by charter for business.

Advantages- Are as following:

• It is a separate legal entity where shareholders and employees of corporation are not personally liable for any obligation of corporation.
• Corporation has perpetual existence that says, business will go on in future.
• In case of public company, transfer of shares is easy.
• In case of S corporation, profits are passed through so they save taxes.

Disadvantages- Are as following:

• Forming a corporation is complex, time taken and there are so many paper work and legal formalities.
• In case of C corporation, shareholders are subject to double taxation.
• Corporation is not easy to wind up.
• There is conflict of interest between shareholders and managers.

Answer(2): Tasks performed by financial manager- Are as following:

• Financial manager does financial planning.
• He takes the investing decisions, he and his team analyzes the project and approves the project with highest estimated cash inflows.
• He takes the financing decisions, he and his team analyzes the sources of finance and chooses the best source of funding that has lower cost of capital so that weighted average cost of capital can be lower.
• He ensures the liquidity in the business.
• He also takes dividend decision.