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Homework answers / question archive / Define each of the following terms: a) Sarbanes Oxley Act b) Proprietorship; partnership; corporation c) S corporation; limited liability company (LLC); limited liability partnership (LLP) d) Intrinsic value; market price e) Marginal investor; equilibrium f) Corporate raider; hostile takeover g) Stockholder wealth maximization h) Business ethics
Define each of the following terms:
a) Sarbanes Oxley Act
b) Proprietorship; partnership; corporation
c) S corporation; limited liability company (LLC); limited liability partnership (LLP)
d) Intrinsic value; market price
e) Marginal investor; equilibrium
f) Corporate raider; hostile takeover
g) Stockholder wealth maximization
h) Business ethics
a) Sarbanes Oxley Act refers to the law that was passed to curb corporate fraud. The law led to the establishment of financial regulations and comprehensive auditing for publicly traded companies, protecting the shareholders, the public, and the employees from accounting errors and fraudulent financial activities.
b) Proprietorship refers to a business that is owned by an individual who has excellent flexibility in the management of the company since it has few taxes and regulations. Here, the owner of the company is personally accountable for the losses and debts that the business incurs.
Partnership refers to two or more individuals who participate in the contribution of money, skills, or labor for the operation of a business. The partners in the business share the management of its services, profits, and losses, whereby each one of them is equally accountable for the debt liability of the business.
A corporation is a separate legal enterprise that is created under state laws, having the legal liabilities and rights detached from the owners. Corporations raise their capital by selling stock shares to the investors, who are protected from the corporation's legal and financial liabilities.
c) S corporation refers to a type of corporation that is taxed after distributing income to the business investors, whereby the investors are taxed at an individual level rather than the double taxation at both the individual and corporate level.
Limited liability company refers to a structure of the business that combines both the characteristics of a corporation, partnership, and proprietorship. The taxes are passed through to the shareholders as in the partnership and proprietorship. At the same time, it limits the liability of the owners to their investments as in a corporation.
Limited liability partnership refers to a form of business that combines the characteristics of a corporation and partnership whereby the partners in the business are protected from the negligence and wrongful behavior of other partners in the business. The partners have limited liability from incompetence, negligence, errors, malpractice, and omissions that are committed by other partners.
d) Intrinsic value refers to the current worth of the expected cash flows that would be achieved in the future, discounted at a relevant discounting rate. It describes the actual or perceived asset value used by the investors in the assessment of the stock.
Market price refers to the present prices at which assets are sold or bought as determined by the supply and demand of the assets in the market.
e) Marginal investor refers to a type of investor whose activities demonstrate the beliefs of the individuals participating in stock trading. They have the most influence on the prices of stock such that they end up determining their prices.
Equilibrium is a state in the market whereby the demand is equal to the supply, and at this stage, the prices are stable and can only be changed if an external factor affects the demand or supply.
f) Corporate raider refers to an investor who intends to take control of a public company by purchasing a considerable portion of a company's shares and using their rights to replace the board of directors or to make the changes they desire in the company's management.
A hostile takeover is a situation whereby a company acquires another target company by directly approaching the shareholders of the target company through a proxy vote or making a tender offer.
g) Stockholder wealth maximization refers to the process of increasing a business's value to increase the value of stock held by the investors. This is done when the management of a company devices ways of maximizing returns on invested funds while at the same time reducing the risk of loss.
h) Business ethics refers to the moral principles that guide how a business and its transactions are to be conducted, determined by the cultures of the institution. They govern the actions and decisions that are made in the business institution.