FINANCE. A branch of economics concerned with resource allocation as well as resource management, acquisition and investment.

Simply, finance deals with matters related to money and the markets. 2. To raise money through the issuance and sale of debt and/or equity.

BUSINESS FINANCE Business Finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprises.

Finance is the lifeblood and nerve center of a business, just as circulation of blood is essential in the human body for maintaining life; finance is a very essential to smooth running of the business. It has been rightly termed as universal lubricant that keeps the enterprise dynamic. No business, whether big, medium or small can be started without an adequate amount of finance. Right from the very beginning, i.e. conceiving an idea to business, finance is needed to promote or establish the business, acquire fixed assets, make investigations such as market surveys, etc., develop product, keep men and machine at work, encourages management to make progress and create values. Even an existing concern may require further finance for making improvement or expanding the business. Thus the importance of finance cannot be over-emphasized and the subject of business finance has become utmost important both to the academicians and practicing managers. The academicians find interested in the subject because the subject is still in its developing stage and the practicing managers are interested in the subject because among the most crucial cdecisions of a f Finance functions: The functions of finance that includes tax, treasury, risk management which will contribute to the achievement of the strategic objectives and goals of the company.
Importance of finance functions:

The importance of finance has arisen because of the fact that present day business activities are predominantly carried on company or corporate form of organization. The advent of corporate enterprises resulted into: y The increase in size and influence of the business enterprises y Wide distribution of corporate ownership and y Separation of ownership and management. The above factors have further increased the importance of corporate finance. As the owners in a corporate enterprise are widely scattered and the management is separated from the ownership, the management has to ensure the maximization of owners economic welfare. The success and

growth of a firm only by maximization of principles and procedures as lay down by corporation finance. The knowledge of the discipline of corporation finance is important not only to the practicing managers, but also to others who deal with a corporate enterprise, such as investors, lenders, bankers, creditors, etc., as there is always a scope for the management to manipulate and window dress the financial statements. In the present day capitalistic regime, the size of the business enterprises is increasing resulting into corporate empires empowered with a lot of social and political influence. This makes corporate finance all the more important. Further, if we refer to corporate finance as the financial management practices by business firms, the importance of financial management can well be described as the importance of corporate finance.
Role of finance:

The role of finance has been emerging from a conventional viewpoint to an innovation viewpoint in current competitive business world.

Financial manager : Job description

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Financial manager: Peter Manager: David

A financial manager is responsible for providing financial advice and support to clients and colleagues to enable them to make sound business decisions. Specific work environments vary considerably and include both public and private sector organisations, such as multinational corporations, retailers, financial institutions, NHS trusts, charities, small manufacturing companies and universities.

Financial considerations are at the root of all major business decisions. Clear budgetary planning is essential for short and long-term future planning, and companies need to know the financial implications of any decision before proceeding. In addition, care must be taken to ensure that financial practices are in line with all statutory legislation and regulations. Financial managers may also be known as financial analysts or business analysts. Introduction When a sole trader sets up they may have some unstated aims or objectives - for example to survive for the first year. Other businesses may wish to state exactly what they are aiming to do, such as Amazon, the Internet CD and bookseller, who wants to make history and have fun. An aim is where the business wants to go in the future, its goals. It is a statement of purpose, e.g. we want to grow the business into Europe. Business objectives are the stated, measurable targets of how to achieve business aims. For instance, we want to achieve sales of 10 million in European markets in 2004. A mission statement sets out the business vision and values that enables employees, managers, customers and even suppliers to understand the underlying basis for the actions of the business. Business Objectives Objectives give the business a clearly defined target. Plans can then be made to achieve these targets. This can motivate the employees. It also enables the business to measure the progress towards to its stated aims. The most effective business objectives meet the following criteria: S Specific objectives are aimed at what the business does, e.g. a hotel might have an objective of filling 60% of its beds a night during October, an objective specific to that business. M - Measurable the business can put a value to the objective, e.g. 10,000 in sales in the next half year of trading. A - Agreed by all those concerned in trying to achieve the objective. R - Realistic the objective should be challenging, but it should also be able to be achieved by the resources available. T- Time specific they have a time limit of when the objective should be achieved, e.g. by the end of the year. The main objectives that a business might have are:

Survival a short term objective, probably for small business just starting out, or when a new firm enters the market or at a time of crisis. Profit maximisation try to make the most profit possible most like to be the aim of the owners and shareholders. Profit satisficing try to make enough profit to keep the owners comfortable probably the aim of smaller businesses whose owners do not want to work longer hours. Sales growth where the business tries to make as many sales as possible. This may be because the managers believe that the survival of the business depends on being large. Large businesses can also benefit from economies of scale. A business may find that some of their objectives conflict with one and other: Growth versus profit: for example, achieving higher sales in the short term (e.g. by cutting prices) will reduce short-term profit. Short-term versus long-term: for example, a business may decide to accept lower cash flows in the short-term whilst it invests heavily in new products or plant and equipment. Large investors in the Stock Exchange are often accused of looking too much at short-term objectives and company performance rather than investing in a business for the long-term. Alternative Aims and Objectives Not all businesses seek profit or growth. Some organisations have alternative objectives. Examples of other objectives: Ethical and socially responsible objectives organisations like the Co-op or the Body Shop have objectives which are based on their beliefs on how one should treat the environment and people who are less fortunate. Public sector corporations are run to not only generate a profit but provide a service to the public. This service will need to meet the needs of the less well off in society or help improve the ability of the economy to function: e.g. cheap and accessible transport service. Public sector organisations that monitor or control private sector activities have objectives that are to ensure that the business they are monitoring comply with the laws laid down. Health care and education establishments their objectives are to provide a service most private schools for instance have charitable status. Their aim is the enhancement of their pupils through education.

Charities and voluntary organisations their aims and objectives are led by the beliefs they stand for. Changing Objectives A business may change its objectives over time due to the following reasons: A business may achieve an objective and will need to move onto another one (e.g. survival in the first year may lead to an objective of increasing profit in the second year). The competitive environment might change, with the launch of new products from competitors. Technology might change product designs, so sales and production targets might need to change Sole Proprietorship This is the simplest and the most widely used structure for business. It is the least regulated type of the various business structures. For tax and legal purposes the business is the owner. The unlimited liability factor is probably the greatest disadvantage. The liabilities of the business are personal to the owner and the business ceases to exist when the owner dies.

Disadvantages
y all of the personal and business assets of the sole owner are at risk in the sole proprietorship y a judgment against the sole proprietorship could reach into the personal assets of the sole owner y liability insurance premiums are vary high. perhaps too costly for the resources of the sole owner y due to the structure it may be difficult to obtain a loan. if there is insufficient collateral a sole proprietor may have to mortgage a loan or place another piece of personal property as collateral y when the sole owner dies often the business ceases to exist due to the lack of structure in this business form

Advantages
y sole owner has total control over the operations of this business y least regulated form of business y other than records for tax purposes there are no legal requirements as to how the business must be operated y usually one only needs to obtain a license or pay a fee to a local registering authority.
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The Limited Partnership

The limited partnership is a hybrid type of business structure. It contains elements of both a traditional partnership and a corporation. The limited partnership form of business structure may be used when some interested parties want to invest in a partnership but want only limited liability and do not wish to exercise any control over the business activities of the partnership. The Limited partnership is subject to much more regulation on the state level than either the sole proprietorship or regular partnership. Each state in the Union has adopted strict regulations according to the Uniform Limited Partnership Act governing the formation and operation of the Limited Partnership. A limited partnership consists of two types of partners; the general partner; one or more people who actively manage the partnership; and the limited partner; one or more people who invest in the partnership but take no active role in the management of the partnership. The general partners are at personal risk for their conduct of the partnership whereas the limited partner risks only that which he has invested in the partnership.

Disadvantages
y There is always a chance for a lack of continuity and clear cut guidelines amongst the partners concerning who does what and how to conduct business. y Due to the state regulations , limited partnerships are subject to more paperwork than the general partnership. y General partners maintain full personal risk. The limited partner risks losing the benefits of the limited partner status if they take any active role in the conduct of the activities of the partnership.

Advantages
y The limited partner, as long as he remains passive, has no personal liability and risks only that which he invests. y This low risk for the limited partner and the fact that the limited partner shares in the profits and tax deductions with no duties regarding the active conduct of business, may make it easier for the partnership to find investors.
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The Corporation A corporation is an artificial entity created by filing Articles of Incorporation with the Secretary of State. This gives the corporation existence and a legal right to conduct business in the state of incorporation. Corporations are more complex than either a partnership or sole proprietorship and are subject to more regulation by the state. The internal rules of the corporation which outline the mechanics of the operation and management are called the by-laws.

Corporate Structure: A Concise Explanation Shareholders: They own share in the business but do not engage in the direct management of the operation except by electing the directors of the corporation and by voting on major corporate issues. Directors: They may be shareholders, but as Directors they do not own any of the business. As group known as the Board of Directors, they are jointly responsible for making the major business decision for the corporation as well as appointing the officers of the corporation. Officers: they may be shareholders and/or directors, but, as officers, they do not own any of the business. They are responsible for the day-to-day operations of the corporate business. Usual titles for the different corporate officers are: President, vice-president, Secretary and treasurer. Disadvantages of Incorporation y due to the organizational structure in a corporation, a certain degree of individual control is necessarily ;lost by incorporation y the technical formalities of corporation formation and operation must be strictly observed in order for a business to reap the benefits of corporate existence. y the initial state fees that must be paid for registration of a corporation can be very high y corporations are also subject to a greater level of governmental regulation than any other type of business entity. y profits are subject to double taxation when distributed to shareholders in the form of dividends. Advantages of Incorporation y potential for limited liability is one of the most important advantages of the corporate form of business structure. The liability of corporate debt is generally limited to the amount of money each investor has invested. y a corporation can theoretically have perpetual existence. y a shareholder may freely sell, trade or give away his stock unless this right is formally restricted by corporate decision y taxation can be both an advantage and a disadvantage.
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The Limited Liability Company (LLC) A Limited Liability Company (LLC) is a hybrid business entity, designed to combine the advantages of a corporation with the tax advantages of a partnership. Like a corporation, the owners of an LLC are not personally liable for the LLC's debts and obligations. Like a partnership, an LLC can be treated as a pass-through entity for tax purposes. Beginning in 1997 the IRS no longer taxes these entities as corporations. They permit the LLC to elect whether taxation as a partnership, sole-proprietorship or corporation best fits the needs of its business and its Members. This may be advantageous for those who cannot meet the IRS requirements for an "S" corporation and desire the tax pass-through treatment.

Sole Proprietorship Advantages and Disadvantages

Sole Proprietorship Advantages Disadvantages

Sole Proprietorship Advantages Disadvantages

Sole Proprietorship Advantages y Easiest and least expensive form of ownership to organize.

Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.

Sole proprietors receive all income generated by the business to keep or reinvest.

Profits from the business flow-through directly to the owner's personal tax return.

The business is easy to dissolve, if desired.

Sole Proprietorship Advantages Disadvantages Sole Proprietorship Disadvantages

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Sole proprietors have unlimited liability and are legally responsible for all debt against the business. Their business and personal assets are at risk.

May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.

May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.

Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

Partnership

1. Advantage: Shared Finances

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In a partnership, both parties are invested in the success of the business. This can help you ease the financial burden of starting a business. With a partnership, you can also pool your resources to raise and obtain capital or secure credit. You essentially double the money you have available for your business, assuming you have an equal partnership.

Advantage: Complimentary Skills

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With a partnership, you can take advantage of the strengths, resources and expertise of each business partner. For example, you may be great at sales and marketing, while your business partner may be good at finances and accounting. Partnerships are good for combining skills and leveraging these skills for the good of the business.

Advantage: Easy and Inexpensive

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The U.S. Small Business Administration says partnerships are generally an inexpensive and easy-to-form type of business structure compared to corporations and other types of businesses. This can help you save time with up-front planning and expenses, so you can put your time into other areas of the business like marketing and operations.

Disadvantage: Liabilities
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Both parties in a partnership are liable for all business activities. Partners are liable for their own actions and the business debts and decisions made by other partners. The personal assets of all partners may be used to satisfy any debts that occur as a result of the partnership. Finally, if your partner leaves the business and skips town, you are responsible for assuming the debt for both parties.

Disadvantage: Disagreements
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Another disadvantage of a partnership is you do not have total control over the business. You have to share decisions, which can lead to differences of opinion and disagreements. This can create a hostile work environment and add stress to both partners' lives. To avoid disagreements, partners should consult each other on all business decisions, learn to compromise and resolve disputes amicably and professionally.

Disadvantage: Splitting Profits

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In a partnership, each partner shares the successes and profits of their business. This means in an equal partnership, your profits are divided in half, compared to other business types such as sole proprietorships. This can be frustrating, especially if you don't each contribute an equal amount of time, effort and resources into the business.

corporation

Advantages * Limited Liability. One of the key reasons for forming a corporation is the limited liability protection provided to its owners. Because a corporation is considered a separate legal entity, the shareholders have limited liability for the corporation's debts. The personal assets of shareholders are not at risk for satisfying corporate debts or liabilities. * Corporate Tax Treatment. Since a corporation is a separate legal entity, it pays taxes separate and apart from its owners (at least in the typical C corporation). Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends. The corporation pays taxes, at the corporate rate, on any profits. * Attractive Investment. The built-in stock structure of a corporation makes it attractive to investors. * Capital Incentive. The stock structure also allows corporations to attract key and talented employees by offering an ownership interest in the form of stock options or stock. * Owner/Employee. A business owner who works in his or her own business may become an employee and thus be eligible for reimbursement or deduction of many types of expenses, including health and life insurance. * Operational Structure. Corporations have a set management structure. Shareholders are the owners of a corporation, who elect a Board of Directors, which then elects the officers. Other than the election of directors, shareholders do not typically participate in the operations of the corporation. The Board of Directors is responsible for the management of and exercising the rights and responsibilities of a corporation. The Board sets corporate policy and the strategy for the corporation. The Board elects officers, usually a CEO, vice president, treasurer and secretary, to follow the policies set by the Board and manage the corporation on a day-to-day basis. In a small corporation, the lines between the

shareholders, Board of Directors, and officers tends to blur because the same people may be serving in all capacities. * Perpetual Existence. A corporation continues to exist until the shareholders decide to dissolve it or merge with another business. * Freely Transferable Shares. Shares of corporations are generally freely transferable because as a separate entity, the existence of a corporation is not dependent upon who the owners or investors are at any one time. A corporation continues to exist as a separate entity and is not terminated or dissolved even when shareholders dies or sell their shares. Shares of corporations are freely transferable unless shareholders have "buy-sell" agreements limiting when and to whom shares may be sold or transferred. Also, securities laws may restrict the transferability of shares. Disadvantages * Fees. It costs money to incorporate. There are typically four types of fees, including: a fee to file the articles of incorporation with the secretary of state; a first year franchise tax prepayment; fees for various governmental filings; and attorney fees. But every year tens of thousands of businesses choose to incorporate online without the use of an attorney. For example, basic incorporation before filing fees at a site like LegalZoom.com costs just $99. * Formalities. The proper corporate formalities of organizing and running a corporation must be followed in order to receive the benefits of being a corporation. * Paperwork. A huge aspect of the corporate formalities that must be followed consists of paperwork. Reports and tax returns must be compiled and filed in a timely fashion; business bank accounts and records must be maintained and kept separate from personal accounts and assets; records must be kept of corporate actions, including meetings of shareholders and Board of Directors; and licenses must be maintained. * Disclosure of Names of Corporate Officers and Directors. Most states do not require that names of shareholders be a matter of public record; however, many states require that the names and addresses of corporate officers and directors be listed on one or more documents filed with the Secretary of State. * Dissolution. Since corporations have a perpetual existence, states provide a mechanism for dissolving a corporation and liquidating its assets. Dissolution does not happen automatically. A corporation can be dissolved voluntarily or involuntarily. A corporation's officers and directors are charged with responsibility for dissolving the corporation, including gathering corporate assets, paying creditors and outstanding claims, and distributing remaining assets to shareholders. * Tax Consequences. C corporations have potential double tax consequences-once when the company makes its profit, and a second time when dividends are paid to shareholders. S corporations can mitigate this tax issue.

The Advantages and Disadvantages of a Corporation

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Christopher Carter

Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.
By Christopher Carter, eHow Contributor

updated January 09, 2011

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Corporations are the best known type of business entity, and some of the biggest companies in the United States are corporations such as McDonald's and Google, as explained by the Citizen Media Law Project website. A corporation has a separate legal existence from the owners of the company. Furthermore, corporations can sue or be sued and enter into contracts, as well as accumulate assets and debts separately from the shareholders of the business.
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1. Liability
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One of the biggest advantages corporations have is that the shareholders of the company are not personally liable for the business debts, obligations and liabilities of the corporation. Shareholders of a corporation are only liable for business debts up to the extent of their investment in the company. Operating as a corporation keeps the shareholder's home, car and other personal assets out of harms way. Creditors of an incorporated business may not pursue the personal assets of the company's shareholders as compensation for business-related debts and obligations.

Stock
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Another advantage a corporation has over other business entities is the ability to raise capital. Corporations have the ability to issue stock as a means of financing the company's activities, or for expansion purposes. Incorporated businesses may issue multiple stock classes that carry various voting and profit privileges. An incorporated company has the ability to issue a public offering which allows shares of the company's stock to trade publicly on NASDAQ or the New York Stock Exchange. In addition, a corporation may offer stock in the company as a way to attract employees.

Formalities
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A big disadvantage of operating as a corporation is the formalities and paperwork involved. Incorporated businesses are required to hold at least one meeting each year. Corporations must keep minutes at every meeting to detail how decisions were reached, and record the voting records of the company's shareholders. Annual reports must be filed with the state where the corporation operates and corporations are required to create financial statements. These requirements may cost a corporation significant time and money, especially if an outside accounting firm must be hired to create the corporation's financial statements.

Taxation
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Another significant disadvantage of operating a corporation is the double layer of taxation that the company must adhere to. The first layer of taxation occurs when the company files taxes as a business with the Internal Revenue Service. The second tax happens when the corporation issues dividends to the company's shareholders. The shareholders of a corporation are required to pay taxes on dividends received from the company at their personal income tax rate.