Why Is Corporate Finances Important to All Managers?

Why Is Corporate Finances Important to All Managers?

a) Why is corporate finances important to all managers?

Corporate finances provide the managers the skills necessary to identify and select corporate strategies that add value to the firm. It also allows managers to forecast the funding requirements of their firm and devise strategy for acquiring those funds

b) Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List advantage and disadvantages.

In setting up a corporation it involves creating a charter, writing a set of bylaws, and filing many stated and federal reports.

The Charter includes: (1) name of proposed corporation; (2) types of activities it will pursue; (3) amount of the capital stock (4) number of directors (5) names and address of directors. This document is then filed with the secretary of state in which it is incorporated once it is approved. Once it is approved the firm is now a corporation. After the corporation begins operations, quarterly and annual employment, financial, and tax reports must be filed with state and federal authorities

Bylaws are a set of rules drawn up by the founders of the corporation. It states how many directors are to be elected (1 year, 1/3 each year for 3 year terms), whether existing stockholders will have the first right to buy and new shares the firms issues and the procedures for changing the bylaws themselves, should conditions require it

Advantages of becoming a corporation include:

1. unlimited life

can continue after its original owners and managers are deceased

2. Easy transferability of ownership interest

ownership interest are divided into share of stock

3. Limited liability

losses are limited to the actual funds invested

o Disadvantages

1. Corporate earnings may be subject to double taxation-corporate level and earnings and on dividends are taxed as income at the stockholder level

2. Setting up a corporation involves preparing a charter, writing by laws, and filing the many required state and federal reports-complex and time consuming

c) How do corporations go public and continue to grow? What are agency problems?

Corporations go public by an initiating a public offering (IPO). This is when the it sells stock for the first time. If the company continues to grow, and need additional funds to support the growth, they can borrow from banks, issuing debt or selling additional stock (seasoned equity offering).

Agency problems are when a manager use their authority for their own benefit than the interest of the owners the shareholders in the corporation. Corporate governance is the set of rules that control a company's behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community and can control agency problems. An example would be if shareholders wanted a new investment that would increase share value but was risky and management did not conform to the shareholders demands because of their own self