Bus/210 Week 2 Checkpoint

Topics: Stock, Limited liability, Legal entities Pages: 2 (473 words) Published: April 28, 2013
In a joint-stock company an entrepreneur raises capital by issuing stock certificates of its ownership. This involves selling shares of the stock to investors that guarantee them the right to a certain percentage of the company’s profits. For example, suppose John holds shares of Mike’s Auto Repair Shop, which is a joint stock company. These shares give John a percentage of the vote on Mike’s management decisions, board elections, etc. The shares also give John unlimited responsibility for Mike’s outstanding unpaid liabilities. In other words, unless John sells his shares of Mike’s Auto Repair Shop, he is liable in whole and in part for principal and interest obligations on bonds or other outstanding loans. Since John holds shares of a joint stock company, he is putting his own assets at risk of being liquidated if Mike were to file for bankruptcy. In a limited liability, if a company goes bankrupt, its creditors cannot seek the personal wealth of its stockholders for reimbursement. Only the money stockholders have initially invested in the business is at risk. For example, suppose John holds shares of Mike’s Auto Repair Shop, which is a limited liability company. John would still have a percentage of the vote on Mike’s management decisions, board elections, etc., but John would not be responsible for any of Mike’s outstanding unpaid liabilities because he would only lose the money in which he invested in Mike’s business. In a partnership, skilled professionals such as bankers, merchants, doctors, lawyers, and accountants agree to pool their talent and resources by establishing a company in which they are the only stock- holders and owners. Each founding partner receives an agreed-upon percentage of the stock of the business based upon the money the partner initially puts into it, the value of his or her skills, experience, and so on. The profits of the business are then divided according to the percentage of stock each partner owns. For example, if...
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