Corporate Structures and Ownership quiz

(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."

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

(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

An initial public offering is a sale of equity shares to the public. Proceeds from the sale increase the issuer's equity capital. A direct listing does not raise capital. A management buyout is a method to take a public company private.

Because the upside for lenders is limited to the promised interest payments and repayment of principal, they do not benefit from an increased growth rate of the company and are unlikely to favor actions that increase a company's risk exposure and potential for default. Because owners have potentially unlimited upside from a company's growth, they are more likely to favor actions that increase a company's potential growth rate.

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.

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 .

the statement is true. If a company fails to meet its obligation to bondholders and ultimately needs to petition the courts for bankruptcy protection, a potential alternative to asset liquidation to maximize proceeds for debt repayment is business reorganization. Following that path through the legal process as opposed to transactions in private or public markets, the company can be reorganized with shareholders getting wiped out and bondholders becoming its new shareholders.

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

Private companies are typically not subject to these requirements.

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 .