ZOLINA, ZANDRIX WEN B.

PCEIT-03-301P EECO
Research Work 1
1. What are the types of business organization?

a. Sole Proprietorship----------------------------------------------------------------------------------------------------------

The simplest and most common form of business ownership, sole proprietorship is a business owned and run by
someone for their own benefit. The business’ existence is entirely dependent on the owner’s decisions, so when the
owner dies, so does the business.

b. Partnership ------------------------------------------------------------------------------------------------------------------

These come in two types: general and limited. In general partnerships, both owners invest their money, property, labor,
etc. to the business and are both 100% liable for business debts. In other words, even if you invest a little into a general
partnership, you are still potentially responsible for all its debt. General partnerships do not require a formal agreement
—partnerships can be verbal or even implied between the two business owners.

Limited partnerships require a formal agreement between the partners. They must also file a certificate of partnership
with the state. Limited partnerships allow partners to limit their own liability for business debts according to their
portion of ownership or investment.

c. Corporation ------------------------------------------------------------------------------------------------------------------

Corporations are, for tax purposes, separate entities and are considered a legal person. This means, among other things,
that the profits generated by a corporation are taxed as the “personal income” of the company. Then, any income
distributed to the shareholders as dividends or profits are taxed again as the personal income of the owners.

d. Limited Liability Company (LLC) ------------------------------------------------------------------------------------------

Similar to a limited partnership, an LLC provides owners with limited liability while providing some of the income
advantages of a partnership. Essentially, the advantages of partnerships and corporations are combined in an LLC,
mitigating some of the disadvantages of each.

2. What are the advantages and disadvantages of every type?

a. SOLE PROPRIETORSHIP---------------------------------------------------------------------------------------------------------
Advantages of sole proprietorship:
 All profits are subject to the owner
 There is very little regulation for proprietorships
 Owners have total flexibility when running the business
 Very few requirements for starting—often only a business license
 Disadvantages:
 Owner is 100% liable for business debts
 Equity is limited to the owner’s personal resources
 Ownership of proprietorship is difficult to transfer
 No distinction between personal and business income

b. PARTNERSHIPS --------------------------------------------------------------------------------------------------------------------------
Advantages of partnerships:
 Shared resources provide more capital for the business
 Each partner shares the total profits of the company
 Similar flexibility and simple design of a proprietorship
 Inexpensive to establish a business partnership, formal or informal

Disadvantages:
 Each partner is 100% responsible for debts and losses
 Selling the business is difficult—requires finding new partner
 Partnership ends when any partner decides to end it

c. CORPORATION --------------------------------------------------------------------------------------------------------------------------
Advantages of a corporation:
 Limits liability of the owner to debts or losses
 Profits and losses belong to the corporation
 Can be transferred to new owners fairly easily
 Personal assets cannot be seized to pay for business debts

Disadvantages:
 Corporate operations are costly
 Establishing a corporation is costly
 Start a corporate business requires complex paperwork
 With some exceptions, corporate income is taxed twice

d. Limited Liability Company (LLC) ----------------------------------------------------------------------------------------------------

Advantages of an LLC:
 Limits liability to the company owners for debts or losses
 The profits of the LLC are shared by the owners without double-taxation

Disadvantages:
 Ownership is limited by certain state laws
 Agreements must be comprehensive and complex
 Beginning an LLC has high costs due to legal and filing fees

https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-Business-Organization-Forms.aspx
3. What is common stock? Preferred stock?

Common stock - is a security that represents ownership in a corporation. Holders of common stock
elect the board of directors and vote on corporate policies. This form of equity ownership typically yields
higher rates of return long term. However, in the event of liquidation, common shareholders have rights to a
company's assets only after bondholders, preferred shareholders, and other debtholders are paid in full.

Common stock is reported in the stockholder's equity section of a company's balance sheet.

Preferred stock - is a special type of stock that pays a set schedule of dividends and does not come
with voting rights. Preferred stock combines aspects of both common stock and bonds in one security,
including regular income and ownership in the company. Investors buy preferred stock to bolster their income
and also get certain tax benefits.

PREFERRED STOCK vs COMMON STOCK

https://www.investopedia.com/terms/p/preferredstock.asp

https://www.investopedia.com/terms/c/commonstock.asp

https://www.forbes.com/advisor/investing/what-is-preferred-stock/
4. What is bond? Classification of bonds.

WHAT IS A BOND?

When you purchase a stock, you're buying a microscopic stake in the company. It's yours and you get
to share in the growth and also in the loss. On the other hand, a bond is a type of loan. When a company
needs funds for any number of reasons, they may issue a bond to finance that loan. Much like a home
mortgage, they ask for a certain amount of money for a fixed period of time. When that time is up, the
company repays the bond in full. During that time the company pays the investor a set amount of interest,
called the coupon, on set dates (often quarterly).

There are many types of bonds, including government, corporate, municipal and mortgage bonds.
Government bonds are generally the safest, while some corporate bonds are considered the most risky of the
commonly known bond types.

Bonds represent the debts of issuers, such as companies or governments. These debts are sliced up
and sold to investors in smaller units. The bond markets are a very liquid and active, but can take second seat
to stocks for many retail or part-time investors. The bond markets are often reserved for professional
investors, pension and hedge funds, and financial advisors, but that doesn't mean that part-time investors
should steer clear of bonds. In fact, bonds play an increasingly important part in your portfolio as you age
and, because of that, learning about them now makes good financial sense. In fact, having a diversified
portfolio of stocks and bonds is advisable for investors of all ages and risk tolerance.

CLASSIFICATION OF BONDS:

a. Classification by Type of Issuer---------------------------------------------------------------------------------------------

The three bond market sectors are government and government-related sector, corporate sector, and
structured finance sector. The government-related sector includes supranational organizations (such as the
World Bank), governments, and local governments (provinces, regions, states, etc.). Structured finance is
done by securitization that transforms transactions into tradable securities in public markets. Securitized (or
asset-backed) securities transfer ownership of assets, ie, loans and receivables, into a special legal entity.
b. Classification by Creditworthiness of Issuer------------------------------------------------------------------------------

Credit rating agencies determine the issuer's creditworthiness. Ratings of Baa3 or above by Moody's
Investors Service or BBB- or above by Standard & Poor's (S&P) and Fitch are investment grade. Ratings below
these are non-investment grade, high-yield, speculative, or “junk” bonds. Investment-grade bonds are
generally more liquid than high-yield bonds.

c. Classification by Maturity----------------------------------------------------------------------------------------------------

Maturities of money market securities such as Treasury bills range from overnight to one year. Corporate
sector securities with short maturities are commercial paper and negotiable certificates of deposit. The
currency denomination is also distinctive.

d. Classification by Interest Rate----------------------------------------------------------------------------------------------

The currency denomination is also a distinctive feature. For example, if a bond is in British Pounds, then the
UK interest rate governs its price. Bonds could pay a fixed rate of interest or a floating rate of interest.

Floating-rate bonds, also called floating-rate notes (FRNs) or floaters, adjust to market interest rates. Interest
rate risk is usually the most considerable risk for fixed-income investors. Banks with floating-rate debts,
therefore, often issue floating-rate loans to limit the volatility of their earnings and at the same time
accommodate investors.

https://www.investopedia.com/financial-edge/0312/the-basics-of-bonds.aspx

https://analystprep.com/cfa-level-1-exam/fixed-income/classifications-of-bonds/