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Introduction to finance

  1. Chapter II
  2.  Finance is the efficient acquisition, allocation, and utilization of funds.  Finance’s functions entail the: a) Allocating available funds b) Acquiring needed funds c) Utilizing these funds to achieve set goals.
  3. A. Form of Negotiation 1. Direct Finance- involves direct borrowing. 2. Indirect Finance- involves the use of financial intermediaries (financial institutions acting as middlemen), hence, also called financial intermediation.
  4. B. User 1. Public Finance- deals with sources and uses of funds of the government. 2. Private Finance- involves individuals and entities. a) Personal Finance- concerned with individuals and households. b) Finance of Non-Profit Organizations- concerned with charitable organizations which are not concerned with profit-making. c) Business Finance- concerned with entities and individuals engaged in business.
  5. • Business- is any lawful economic activity that involves rendering service. • Efficiency- is accomplishing something at the least cost. • Effectiveness- is getting things done and attaining objectives. Efficiency + Effectiveness = Productivity
  6. A. Nature/Purpose 1. Service- are engaged in rendering service. 2. Trading/Merchandising- engaged in buying and selling merchandise. 3. Manufacturing- are those which buy raw materials and process the same to convert them into finished products which they sell. 4. Banking and Finance- deals with institutions involved in lending and borrowing.
  7. 5. Mining/Extractive Industries- extract natural resources like the gold mining. 6. Construction Companies- engaged in road buildings, etc. 7. Genetic Industries- involved in the production of certain species of plants and animals like agriculture, fishing, etc.
  8. B. Ownership 1. Sole or Single Proprietorship 2. Partnership 3. Corporation 4. Cooperative
  9.  Is a business unit owned and controlled by a single individual.  The owner of the proprietorship is referred to as a sole proprietor or a single proprietor.  Sole proprietorship is the simplest business entity and the easiest to form or put up.
  10. 1. Ease of formation 2. Needs only minimum capitalization 3. Sole decision maker 4. Easy to terminate
  11. 1. Unlimited liability 2. Limited access to capital 3. Limited skills, talents, and capabilities 4. Inability to attract or retain good employees 5. Limited term of existence 6. Difficulty in measuring success 7. Personal problems may hinder operation/success
  12.  Is an association of two or more persons who have agreed to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves.  The owners of a partnership are called partners.
  13. 1. Contract of partnership 2. Two or more persons with legal capacity to enter into a contract 3. Valuable contribution (money, property, or industry) to a common fund 4. Intention to divide the profits between or among the partners. 5. Lawful purpose(s)
  14. A. Mutual Agency- every partnership is an agent of the partnership, so long as it is within the scope of the partnership, bind the partnership. B. Voluntary association- being a partner is voluntary. Each partner is entitled to choose his partners. C. Based on Contract- there must be an agreement which can be oral or written that will bind the partnership.
  15. D. Limited Life- the partnership is dissolved/terminated once a partner withdraws, dies, becomes bankrupt, becomes legally incapacitated, or a new partner(s) is admitted into a partnership. E. Unlimited Liability- a general partner and an industrial partner are liable for partnership debts up to extent of their personal assets after partnership resources have been exhausted.
  16. F. Division of Profits/Losses- profits and losses are divided between/among partners in accordance with their agreement, or in the absence of such an agreement, in accordance with their capital balances. G. Co-ownership of ContributedAssets- partners become co-owners in assets contributed by any partner to the partnership.
  17. 1. Ease of formation. 2. Allows pooling of financial resources. 3. Allows pooling of skills, expertise, and experience of partners. 4. Less government control, supervision, and intervention.
  18. 1. Limited Life 2. Unlimited Liability 3. Mutual Agency
  19. To organize a partnership, persons desiring to become partners draw up a contract either orally or writing, which will govern the formation, operation, and dissolution of the partnership.
  20. 1. General Partnership- all partners are general partners. 2. Limited Partnership- there is at least one limited partner (could be more) and at least one general partner.
  21. A. As to Liability 1. General Partner- liable for partnership debts up to the extent of their personal assets. 2. Limited Partner- liable for partnership debts only up to the extent of their interest (investment and profits) in the partnership.
  22. B. As to Investment in the Partnership 1. Capitalist Partner- a partner who contributes money and/or non-cash assets in the partnership. 2. Industrial Partner- a partner who contributes skill or industry in the partnership. 3. Capitalist-Industrial Partner- a partner who contributes cash plus and/or other assets and industry or skill in the partnership.
  23.  an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.  Corporation Code of the Philippines defines corporation as an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.
  24. 1. Separate legal existence 2. Created by operation of law 3. Transferable units of ownership 4. Limited liability of stockholders 5. Continuity of existence 6. Centralized management by the Board of Directors
  25. 1. Artificial being 2. Limited liability of shareholders 3. Transferability of shares 4. Continuity of life of the corporation 5. Greater ability to acquire funding 6. Greater ability to acquire talents, skills, and expertise.
  26. 1. Corporators- are those who compose the corporation whether they are stockholders or members. 2. Incorporators- founders of the corporation; are signatories to the Articles of Incorporation. 3. Stockholders- owners of shares of stock in a corporation 4. Members- corporators of a non-stock corporation, the counterpart of shareholders/stockholders of a stock corporation.
  27. 5) Promoters- persons who undertake to form and organize a corporation bringing together the incorporators or persons interested n the corporation. 6) Board of Directors- stockholders voted into the position as director. 7) Corporate Officers- are those elected by the Board of Directors to run the corporation.
  28. 3 Steps in the Organization of a Corporation 1. Promotion 2. Incorporation 3. Formal Organization and Commencement of Business Operations a) Adoption of By-laws b) Election of the Board of Directors c) Election of Officers d) Commencement of business operations
  29. 1. Public Corporation- are corporations organized for the government of a portion of the state. 2. Private Corporation- all corporations other than government are private.
  30. A. As to Purpose 1. For profit (civil) 2. Non-profit 3. Charitable a) Ecclesiastical/Religious b) Eleemosynary/Public Charity 4. Foundation
  31. Other private corporations are: a) Quasi-public corporations b) Government-owned or controlled corporations c) Wasting assets corporations
  32. B. As to How Membership Is Represented 1. Stock Corporation- these are corporations of which membership is represented by shares of stock. a) Open corporations b) Closed corporations 2. Non-stock Corporation- these are corporations other than stock corporations.
  33. C. As to the State of Incorporation 1. Domestic Corporation- considered domestic in the state/country fro which it obtain its charter. 2. Foreign Corporation a) Resident Foreign Corporation b) Non-resident Foreign Corporation 3. Multinational Corporation – extend their operations in other countries.
  34. D. As to Number of Persons Composing the Corporation 1. Corporation Sole- this is only applicable to the Church. 2. Corporation Aggregate- this is the common form of corporation where there are several stockholders.
  35. E. As to Legal right to Corporate Existence 1. De jure Corporation- is a corporation existing in fact and in law. 2. De facto Corporation- is a corporation in fact but not in law.
  36. F. As to Relation to Other Corporations 1) Parent or Holding Corporation- this is the original corporation from which another corporation, called subsidiary or sister company emanates. 2) Subsidiary or Sister Corporation- this is the corporation whose shares of stock are owned in majority by the parent or holding company.
  37.  Ownership in a corporation is represented by its capital stock. Capital stock is divided into units to facilitate the transfer of ownership and distribution of profits. Each of the units of capital stock is referred to as the share of stock.
  38. 1. Value on the stock certificate a) ParValue Shares- are shares of which the specific money value is shown on the face of the stock certificate and fixed in the Articles of Incorporation. b) No-parValue Shares- are shares without any money value appearing on the face of the stock certificate.
  39. 2. Rights to dividends a. Common shares- a corporation issues only one class of stock. b. Preferred shares- a corporation issue more than one class of stock, one with preferential rights over another class. 1. As to assets- upon liquidation mean that such shares shall be given preference over common shares in the distribution of the assets of corporation in case of liquidation. 2. As to dividends- refers to shares with preferential rights to share in the earnings of the corporation.
  40. a) Cumulative- are entitled to receive all passed dividends in arrears. b) Non-cumulative- are not entitled to passed dividends. c) Participating- are entitled not only to stipulated dividend, but they also share with the common stock in the dividends that may remain after the common shares have received dividends at the same rate as the preferred. d) Non-Participating- are entitled to a fixed amount or rate of dividend only.
  41.  Organization established by members to provide themselves with goods and services or to produce and dispose of the products of their labor. • Patronage refund- is the profit of the cooperative or credit union that is given back to the members.
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