Ans:-- 1.

Advantages of a Sole Proprietorship

A sole proprietor has complete control and decision-making power over the business. Sale or transfer can take place at the discretion of the sole proprietor. No corporate tax payments Minimal legal costs to forming a sole proprietorship Few formal business requirements Easiest and least expensive form of ownership to organize. Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. Sole proprietors receive all income generated by the business to keep or reinvest. Profits from the business flow-through directly to the owner's personal tax return. The business is easy to dissolve, if desired.

What Is a Major Drawback of a Sole Proprietorship? A sole proprietorship is one of the four basic types of business organization. The easiest kind of organization to create, it also has some of the largest drawbacks. A sole proprietorship is not registered with the state as a corporation or limited liability company.
1. Liability Business debts under a sole proprietorship are not separable

2.

3.

4.

5. 6.

from the owner's personal debts. That means your personal possessions can be sought by creditors if you default on payments or loans. Taxation Sole proprietorship are not separable for tax purposes. That means the owner and the business are viewed as the same thing by the government and are taxed as a single entity. Also, sole proprietorship generally have the fewest tax breaks and benefits. Liability Sole proprietors are generally not shielded from liability when it comes to the company's actions. Unlike LLC's or corporations, there is no "corporate veil" shielding the individuals from the responsibilities of the company. No Partners As the name implies, a sole-proprietorship is a one-person operation. You can't take on partners or others to run it with you, only employees. Funding With no partners and unlimited liability, it can often be difficult for sole proprietorships to get funding. Time Demands As the only person in control, owners of sole proprietorships can have unlimited demands placed on their time.

Ans:- 2 A special form of partnership, called a Limited Liability Partnership, can be utilized. under this arrangement, one or more partners

are designated general partners and have unlimited liability for the debts of the firm; other partners are designated limited partners and are liable only for their initial contribution. A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liability. It therefore exhibits elements of partnerships and corporations.[1] In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of an unlimited partnership. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation.[2] In some countries, an LLP must also have at least one "general partner" with unlimited liability. Unlike corporate shareholders, the partners have the right to manage the business directly. In contrast, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest. An LLP also contains a different level of tax liability from that of a corporation. Limited liability partnerships are distinct from limited partnerships in some countries, which may allow all LLP partners to have limited liability, while a limited partnership may require at least one unlimited partner and allow others to assume the role of a passive and limited liability investor. As a result, in these countries, the LLP is more suited for businesses where all investors wish to take an active role in management. Ans :-3 There are essentially two groups responsible for protecting and managing the interests of stockholders: the Board of Directors and the Management Team. Ultimately the responsibility falls with the management team, as they tend to be hands-on in the daily operations of a business. They should know what's going on and be held accountable for not reporting shortcomings, expectations, news, etc. in a timely manner to the Board and also to corporate shareholders. The board of directors is elected by the shareholders of a corporation to oversee and govern management and to make corporate decisions on their behalf. As a result, the board is directly responsible for protecting and managing shareholders' interests in the

company. For a board of directors to be truly effective, it needs to be objective and proactive in its policies and dealings with management. This helps to ensure that management is generating shareholder value. A more objective board of directors, or one that is separate from a company's management, is more likely to promote or protect the interests of the company's shareholders. For example, a board of directors made up entirely or primarily of management would clearly be hampered by conflicts of interest, and the preservation of shareholder value might not be a priority. Another factor that has an impact on the effectiveness of a board of directors is compensation. Adequately compensating board members for their work is one way to ensure that they will make every effort to promote and protect investor interests. The members of a board of directors are paid in cash and/or stock. Likewise, management and employees also need to be aligned with investors and this can be achieved through the compensation that both groups receive. This may include making both parties owners (investors) in the company. When management and employees are also shareholders, they will be motivated to protect shareholder interests as their own. This helps to protect a company from mismanagement and weak employee productivity. Also, a bonus targeting system can be used in which employees and managers receive bonuses when certain goals are met. Such strategies help to align the interests of employees and management with those of investors. Ans :-4 From a business standpoint, profit maximization is not always the primary goal. 1. A company may be seeking to gain market share by lowering its prices and squashing competition. 2. It may be seeking to use working capital that might otherwise be used for marketing or expansion to pay back debt thereby lowering its debtto-income ratio. 3. it may also be trying to buy back its shares from the public or private market thus lowering potential profits, but increasing profit-per-share to remaining investors. This is what pushes up a company's stock price. 4. This approach to business tends to lead to better long-term decisionmaking as management balances stakeholder needs and desires against each other. 5. We definitely have to understand that companies should not operate of maximization of profit reasons only, for profit maximizing only leads to true greed.

6. The reason being is that you will try to compromise on your companies ethics and it also does not solve any problems within the company. 7. The problem of any business is not the maximization but the gain of sufficient profit to cover risk of economic activity and thus to avoid loss. Current theory asserts that the firms proper goal is to maximize shareholders wealth, as measured by the market price of the firms stock. A firms stock price reflects the timing, size and risk of the cash flow that investors expect a firm to generate over time. In this theory, financial managers should undertake only those actions that they expect will increase the value of the firms future cash flow. Theorical and empirical arguments support the assertion that managers should focus on maximization shareholder wealth. Shareholders of a firm are sometimes called residual claimants, meaning that they have claims only on any of the firms cash flows that remain after employees, suppliers, creditors, governments and other stakeholders are paid in full. shareholders stand at the end of this line so if the firm cannot pay the stakeholders first, shareholders receive nothing! Shareholders also bear most of the risk of running the firm. So if firms did not manage to maximize shareholders wealth, investors would have little incentive to accept the risks necessary for a business to succeed. Although the primary goal of managers should be maximizing the shareholder wealth, in recent years, many firms have focused to include the interests of other stakeholders like employees, customers, tax authorities and etc. considering other constituents interests in part of the firms social responsibility and keeping other affected groups happy provides long term benefits to shareholders. In most cases, taking care of stakeholders translates into maximizing shareholders wealth. Ans :-5 The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market. Features of primary markets are:

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors.

The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public." The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are:

Initial public offering; Rights issue (for existing companies); Preferential issue.

Importance of Primary Markets: Apart from their importance for the businesses, primary markets are also critical from a national perspective as they help to create capital. The primary is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Features of primary markets are: This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term

external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as going public. Methods of issuing securities in the primary market are: Initial public offering, Rights issue (for existing companies), and Preferential issue. The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering.[1] Alternatively, secondary market can refer to the market for any kind of used goods. The market that exists in a new security just after the new issue, is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock. The distinction between a secondary market and primary market is a necessary element of understanding the capital markets sector. A primary market represents the first venue in which securities, such as stocks or bonds, can be offered, while a secondary market can be designated as the setting in which the securities first offered through a primary market are offered for sale. Moreover, a primary market allows investors to purchase these financial products directly from the individuals or groups initially responsible for creating them. The secondary market, on the other hand, represents a venue for transactions between various investors. Ans- 6 Income Statement is another type of a financial statement. It summarizes activities and events of one company which happened in a period of time. Usually, there are monthly, quarterly, and annual income statement. An income statement will show all revenues, all expenses, and net profits in detail. On the contrary, a balance sheet show a company financial positions such as assets and debt at that precise date. A balance sheet will show company's assets, liabilities and shareholders equities. Assuming no asset or liability changes, one take the net profit figures from an income statement and add it to the shareholders equities portion. For financial statement analysis purposes, having either one is useless. It is essential to have both income statement and balance sheet together. Balance sheet indicate what the firm owns and how these assets are financed in the form of liabilities or ownership interest. While income statement purports to show the profitability of the firm, the balance sheet delineates the firm's holdings and obligations An income statement (profit and loss statement) summarises the company's income and expenditure coming down the the profit or loss for the period. This is a

statement over a certain period of time, for example a month or a year. A balance sheet summarises the assets and liabilities of the business and is a statement at one period in time Ans :- 7 A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as: EBIT (1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure It can also be calculated by taking operating cash flow and subtracting capital expenditures. Free cash flow or FCF is important to leveraged buyouts because it helps an analyst or banker determine whether there are sufficient excess funds to pay back the loan associated with the leveraged buyout.