Corporate Finance – An Introduction

A corporation is a business entity which is started by few people and its shares are owned by this few people. As the company grows, its shares will be listed in the stock exchange and can be traded by the general pubic. At this joke this can be called as a public company. The advantage…

A corporation is a business entity which is started by few people and its shares are owned by this few people. As the company grows, its shares will be listed in the stock exchange and can be traded by the general pubic. At this joke this can be called as a public company. The advantage of the corporation is the scope of investment. Any individual can invest even a small money and become a partner in the business. So the company will get money for their business. As the business grows the share holder will get the advantage of the profit shared.

The company may get the investments even from large forms like pension funds, federal funds, insurance companies. They buy in large volume and hence can control the business decisions. As the company grows the profits are shared basis on the share that each person has. This way of giving the profits is done in the name of divide. To represent the stock holders aspirations, they elect board of directors. They are non executive members of the board and not directly employed by the company. They will make sure that the company is taking the decisions in favor of stock holders interest.

When a person invests in stock he has limited liability. That is you need not pay the losses to the corporation to come back on to the track as a stake holder. At the best you are going to lose the part of money that is invested in shares. This happens when the performance of corporation is bad.