Corporate Structures and Ownership quiz

In either a general partnership or a limited partnership, general partners have unlimited liability.

Interest and principal payments to lenders are contractual obligations. A corporation may distribute dividends to owners but is not required to do so .

Leveraged buyouts can result in a public company going private. Direct listings and special purpose acquisition companies are methods for a private company to go public.

(sole proprietorship) is correctbecause "the simplest business structure is the sole proprietorship, also called the sole trader....key features of sole proprietorships include: Operational simplicity and flexibility".

(limited partnership) is incorrect because "key features of limited partnerships include the following:

• GP operates the business, having unlimited liability,
•  LPs have limited liability but lack control over business operations.

" Due to multiple partners and partnership agreement, this structure is not as simple and flexible as a sole proprietorship. "Key features of sole proprietorships include: Operational simplicity and flexibility."

(general partnership) is incorrect because "a general partnership...has two or more owners called partners whose roles and responsibilities in the business are outlined in a partnership agreement." As such, this structure is not as simple and flexible as a sole proprietorship. "Key features of sole proprietorships include: Operational simplicity and flexibility".

Assuming a company is repaying interest and principal in full and on time, debt holders have no further claims. Equity holders benefit from company growth .

In a corporation, owners are most often not directly involved in operating the business. Both general partnerships and limited partnerships have general partners who operate the business .

From the issuer’s perspective, bonds are riskier than stocks for the same reason bonds are safer than stocks for investors. Bonds increase risk to the corporation by increasing leverage. If the company is struggling and cannot meet its promised obligations to bondholders, bondholders have the legal standing to force certain actions upon the corporation, such as bankruptcy and liquidation

(share transferability) is correct: because public shares trade on exchange whereas private shares do not. "In most cases, public companies have their shares listed and traded on an exchange. An exchange listing allows ownership to be more easily transferred because buyers and sellers transact directly with one another in the secondary market, on the exchange" . "If an owner of a private company wants to sell shares, he must find a willing buyer".

(return potential) is incorrect : because "the potential returns in private companies can be much larger than those earned from investing in public companies."

(control over management) is incorrect because "with often smaller numbers of shareholders in private companies, investors have greater control over management."

Regulators typically require periodic reporting of financial results for public companies.

Private companies are typically not subject to these requirements.

(Nonprofit corporations by definition cannot generate profits) is incorrect. If they are run well, nonprofits can generate profits; however, all profits must be reinvested in promoting the mission of the organization.

(Transferring ownership from seller to buyer is more difficult for a private company than for a public company) is correct. In contrast to public companies, private company shares do not trade on an exchange, so no visible valuation or price transparency exists for the company. Private company shares are not liquid. This means that transferring ownership from seller to buyer is more difficult than it is for a public company.

(Companies are categorized as public when they have greater than a minimum number of shareholders) is correct. In many countries, if there are a large number of shareholders (usually greater than 50), the company is categorized as a public company and subject to more onerous regulatory requirements whether or not it is listed on a stock exchange