Topics of Interest-
- Why to choose a specific business structure
- Corporation- Taxed at the corporate level and ownership transferable via stock certificates
- Partnership- Agreement outlines control and share of profits, individual taxed
- Limited Liability Partnership- Partners share in profit with limited liability as long as they take role in the management
Tax shelters are typically partnerships due to flow of losses generated by deductions: 1) depreciation or 2) depletion allowances
Subchapter S- corporations with X<100 shareholders benefit from incorporation while being taxed as partnership (section 1244 IRS code-net assets X<500,000 issue stock where my losses to investors will be deducted against income rather than capital loss(great for startups due to tax advantages and extended losses).
- Directors have a fiduciary responsibility for all stockholders of a company.
- The business judgment rule protects directors from liability if they used best judgment even if the decision was a mistake... HOWEVER, if any part of prospectus used in connection with public offering contains a misstatement or material omission, every director is personally liable
- Directors along with officers and beneficial owners of a public company with more than 10% ownership are considered insiders and must file with the SEC their holdings
- Trustees
- 1939 Act- limits who can be a trustee for public debt issues
- Cannnot be trustee under another issue with conflicting rights
- Cannot control the issue
- Cannot own X>10% of issuing company
- Capital Structure
- Net Operating Approach: Company valued on capital structure as a whole. No difference between debt/equity (assumes debt there is an explicit cost of interest and as debt/equity increases, common stock perceived riskier which leads to increase in demand payments. This leads to value/share declining
- Majority Approach: as debt increases, it leads to increased risk, which leads to decline in p/e but not enough to offset the benefit of using debit instead of equity for financing (There is an equilibrium where the marginal cost of selling equity equals selling debt)
- Off-Balance Sheet Financing
- Project financing (subsidiary even with a parent guarantee)
- Municipal pollution bonds
- ESOPs
- Leasing
- There exist tax benefits to leasing over owning the property outright. They typically are shown as footnotes in reporting but if capital lease most but included on balance sheet.
- Reorganizing a Company
- Creditors can force a bankruptcy or the company can voluntarily file
- Ch11-arranging unsecured creditors
- Ch10- reorganization of securities and unsecured debt
- Ch12- real estate
- Section 77- railroad reorganization
- Indemnity hearing- hearing set up to specifically negotiate under bankruptcy with creditors and potentially reorganize the company
- Combining Companies
- 3 Major Merger Movements
- 1900-1907 (Horizontal Merger)
- 1920-1929 (Horizontal Merger)
- 1960-1968 (Conglomerates)
- Short tendering was used to avoid maximum firm commitment from purchasing a company by arbitragers. Now not allowed because of the disadvantages to the public.
- Additional Interesting Facts
- Small Business Investment Corporation- Licensed by SBA to finance small companies
- They treat losses of sales as loss but gains treated as capital gains
- SBA will purchase/guarantee debt of SBIC up to 4 times the equity of SBIC
- MESBICs lend to minorities
- Antitrust handled by both 1)Antitrust division of Justice Department 2) Bureau of Competition of the Federal Trade Commission
- SEC lets accounting community choose the standard of reporting
No comments:
Post a Comment