ASSIGNMENT OF BCOA-1
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- Discuss the various forms of business organisations with their
respective merits and demerits .
- What is a report? Describe the process of report writing . What rules
are to be kept in mind for writing reports?
- (a)Explain the basic steps required in setting up a small busines unit?
(b) Who is an entrepreneur? Discuss the qualities required to become a successful entrepreneur.
- (a) What is a paragraph? Explain the important components of
paragraph, with suitable examples.
(b)You are in charge of purchase for ABC automobiles. Last week you made an order with Aero Enterprises, which is still pending. Write a letter to the manager of Aero Enterprises for the cancellation of the order due to delay.
- Write short notes on the following:
(a)Business blueprint
(b)Memo
- Differentiate between the following:
(a)Facts and Opinions
(b)Private and Public limited company
1. Discuss the various forms of business organisations with their respective merits and demerits.
ANS: Sole Proprietorship
A Sole Proprietorship consists of one individual doing business. Sole Proprietorships are the most numerous form of business organization in the United States, however, they account for little in the way of aggregate business receipts.
Advantages Ease of formation and dissolution. Establishing a sole proprietorship can be as simple as printing up business cards or hanging a sign announcing the business. Taking work as a contract carpenter or freelance photographer, for example, can establish a sole proprietorship. Likewise, a sole proprietorship is equally easy to dissolve.
Typically, there are low start-up costs and low operational overhead.
Ownership of all profits.
Sole Proprietorships are typically subject to fewer regulations.
No corporate income taxes. Any income realized by a sole proprietorship 1s declared on the owner's individual income tax return.
Disadvantages
Unlimited liability. Owners who organize their business as a sole proprietorship are personally responsible for the obligations of the business, including actions of any employee representing the business.
Limited life. In most cases, if a business owner dies, the business dies as well.
It may be difficult for an individual to raise capital. It's common for funding to be in the form of personal savings or personal loans.
The most daunting disadvantage of organizing as a sole proprietorship is the aspect of unlimited liability. An advantage of a sole proprietorship is filing taxes as an individual rather than paying corporate tax rates. Some hybrid forms of business organization may be employed to take advantage of limited liability and lower tax rates for those businesses that meet the requirements.
These include S Corporations, and Limited Liability Companies (LLC's). Where S-Corps are a Federal Entity, LLC's are regulated by the various states. LLC's give the option for profits from the business to pass through to the owner's individual income tax return.
Partnership A Partnership consists of two or more individuals in business together. Partnerships may be as small as mom and pop type operations, or as large as some of the big legal or accounting firms that may have dozens of partners. There are different types of partnerships-general partnership, limited partnership, and limited liability partnership-the basic differences stemming around the degree of personal liability and management control.
Advantages Synergy. There is clear potential for the enhancement of value resulting from two or more individuals combining strengths.
Partnerships are relatively easy to form, however, considerable thought should be put into developing a partnership agreement at the point of formation.
Partnerships may be subject to fewer regulations than corporations.
There is stronger potential of access to greater amounts of capital.
No corporate income taxes. Partnerships declare income by filing a partnership income tax return. Yet the partnership pays no taxes when this partnership tax return is filed. Rather, the individual partners declare their pro-rata share of the net income of the partnership on their individual income tax returns and pay taxes at the individual income tax rate.
Disadvantages
Unlimited liability. General partners are individually responsible for the obligations of the business, creating personal risk.
Limited life. A partnership may end upon the withdrawal or death of a partner.
There is a real possibility of disputes or conflicts between partners which could lead to dissolving the partnership. This scenario enforces the need of a partnership agreement.
Corporation
Corporations are probably the dominant form of business organization in the United States, with LLCs being one of the most popular. There are a number of LLC formation services you can use to expedite this process. Although fewer in number, corporations account for the lion's share of aggregate business receipts in the U.S. economy. A corporation is a legal entity doing business and is distinct from the individuals within the entity. Public corporations are owned by shareholders who elect a board of directors to oversee primary responsibilities. Along with standard, for-profit corporations, there are charitable, not-for-profit corporations.
Advantages
Unlimited commercial life. The corporation is an entity of its own and does not dissolve when ownership changes.
Greater flexibility in raising capital through the sale of stock.
Ease of transferring ownership by selling stock.
Limited liability. This limited liability is probably the biggest advantage to orgamzmg as a corporation. Individual owners in corporations have limits on their personal liability. Even if a corporation is sued for billions of dollars, individual shareholder's liability is generally limited to the value of their own stock in the corporation.
Disadvantages
Regulatory restrictions. Corporations are typically more closely monitored by governmental agencies, including federal, state, and local. Complying with regulations can be costly.
Higher organizational and operational costs. Corporations have to file articles of incorporation with the appropriate state authorities. These legal and clerical expenses, along with other recurring operational expenses, can contribute to budgetary challenges.
Double taxation. The possibility of double taxation arises when companies declare and pay taxes on the net income of the corporation, which they pay through their corporate income tax returns. If the corporation also pays out dividends to individual shareholders, those shareholders must declare that dividend income as personal income and pay taxes at the individual income tax rates. Thus, the possibility of double taxation.
2. What is a report? Describe the process of report writing. What rules are to be kept in mind for writing reports?
ANS: A report is a document that presents information in an organized format for a specific audience and purpose. Although summaries of reports may be delivered orally, complete reports are almost always in the form of written documents. Process ( or) Stages of writing report
1. Decide the Nature of Report: The nature of report refers to whether the report is statutory or non-statutory type. The shape of the report is based on the type of report.
2. Decide the Purpose of Report: The purpose of report can be decided only after knowing the nature and type of report. The remaining stages of the report are based on the purpose of the report.
3. Decide the Contents of the Report: Generally, the following contents are included in any type of report. They are Heading, Address, Contents, Terms of reference, Body of the Report, Recommendations, References, Appendices and Signature.
4. Title should be given to any report: It is termed as heading. The title should be short, clear, simple, meaningful and attractive. Besides, the title itself conveys the purpose and contents of the report. The contents of the report is given in page wise. It means that content indicates the page number of each matter or information.
5. Brief introduction: A brief introduction may be given about the need for writing a report and the factors responsible to prepare this report. If a report is prepared to solve a problem, a brief description of problem may be given within the introduction.
6. Main body of the report: The full facts of the information is given in the main body of the report. Moreover, suitable and clear explanation should be given on the basis of available information. Tables, graphs and diagrams are used to present the report very effectively. Moreover, the data have been analyzed in the main body of the report. On the basis of analysis of data and available information, adequate practical suggestions are given in order to help the management to take quality decision.
7. Summary of the Report: Summary and conclusions of the report are given at the end of the report. It is customary to maintain the list of references and bibliography indicating the sources form where the writer has taken material for writing the report. Appendices contain diagrams, statistical data, specimen forms and the like.
8. End of the Report: If an individual is appointed to write a report, he/she has to sign at the end of the report. In other words, if a committee is formed to write a report, the chairman and all the members of committee should sign at the end of the report. It is advisable to mention date on the report.
9. Collection of Data: Data may be divided into two types. They are primary data and secondary data. The primary data has been collected by investigations, observations, interviews or surveys. The secondary data has been collected from various records of the company. Sometimes, some books may be used to collect the secondary data. In certain cases, data have been collected from outside the company.
10. Analysis of Data: The collected data has been classified, tabulated, edited and analyzed. The way of arranging the data is highly useful for proper analysis of data. The logical analysis of data gives meaningful information to the management. The conclusion is also based on the analysis of data.
11. Format of a Report: The format of a report refers to structure of a report. It means that arrangement of data and information in a meaningful way. If report is in a letter form, it has salutation and a complimentary close. If report is in form of memorandum, salutation and complimentary close may be dropped.
12. Writing of First Draft: Report writing is an art. It can be developed by trial and error method. An individual cannot able to write the report according to the expectation of others. The expectation can not be judged accurately. The reason is that needs and reporting style preference of readers are differing from one individual to another. Hence, fair report is prepared and circulated among few members.
13. Report Writing: The first copy of the report is received back from the readers. The critical views of the readers are taken into consideration for revising the report. The criticism may be inclusion of irrelevant data and information and absence of relevant data and information. These things are properly noted. Then, final report is prepared in a systematic way.
14. Presentation of Report: Report may be hand written, Xeroxed, typewritten or printed depending on the number of copies required. Standard norms are followed in the report preparation. Sufficient space and margin should be kept on the left hand side. Reports are written only one side with double space. Pages, paras and sections are properly numbered. If report is voluminous, bound form is used for presenting the report.
3. (a)Explain the basic steps required in setting up a small business unit?
ANS: 1 . Identify Your Business Opportunity:
Choosing what kind of business to start can be an immobilizing task when confronted with a multitude of opportunities. It's important to determine where your passions lie and to understand your personality type. Yet, equally important is what skills you bring to the table and whether you are entering a dying industry or a fast-growing emerging business.
2 . Build a Business Plan:
For any start-ups, a business plan allows you to gain a better understanding of your industry structure, competitive landscape, and the capital requirements of starting a small business. A study mentioned in "Business Plans For Dummies" by Paul Tiffany states that companies with g business plan have 50% more profits and revenue than non-planning businesses. Writing a business plan just makes good business sense.
3 . Find Start-up Money:
To start a business, you must invest in the business. The journey of finding start-up funds will be different for each individual. Some start-ups such as consulting require a few thousand to get a website and business cards whereas a retail store could need $100,000 or more. Finding the money you need may come from a source you never thought of or may just end up being the frugal bootstrap method.
4 . Name Your Business:
What's in a business name? Everything and nothing. The right business name will help distinguish you from a sea of bland competitors, provide your customers with a reason to hire you and aid in the branding of your company. Learn what you need to know to find a name for your business.
5 . Choose a Business Structure:
Deciding on the structure of your business is not a decision to be taken lightly. Whether you choose the popular LLC, a sole proprietorship or form a corporation; your choice will have an impact on your business liability. fund-ability as well as taxes due. Don't fret over your ultimate business structure, because as your business evolves, so too, may your structure.
6 . Get Your Business License and Permits:
Starting a small business requires the mundane, yet necessary, paperwork and regulations. Depending on your chosen business structure, may need to register your business with the state authorities. Setting up your small business may require an employer identification number (EIN) which is also used by state taxing authorities to identify businesses. Additional paperwork can entail sales tax licenses, zoning permits and more.
7 . Set Up & Determine Your Business Location:
One of the multitudes of tasks in starting a business is the setting up of your office. There are many steps in office set up including where to locate your office (home or office space), buying the necessary office equipment, designing your workspace, and getting supplies.
8 . Get Business Insurance:
As a new small business owner, you have the responsibility to manage the risks associated with your business. Don't put your new start-up at risk without getting the proper small business insurance to protect your company in the event of disaster or litigation.
9 . Create an Accounting System:
Unless you're a number person, the accounting and bookkeeping aspect of running your business can't be avoided. Setting up your accounting will help you understand the financials of running a business and help you avert failure.
(b)Who is an entrepreneur? Discuss the qualities required to become a successful entrepreneur.
ANS: An entrepreneur is defined by the personal risk they take on in pursuit of a new business, innovation, or some other form of enterprise. In exchange for taking on that risk, they often profit most significantly from their enterprise's success. There is some debate over the exact definition of an entrepreneur.
1. Self-Discipline
The first trait that all successful entrepreneurs must possess is self-discipline. Self-discipline is the single most important quality for success in life and business. If you can discipline yourself to do what you should do, whether you feel like it or not, your success is virtually guaranteed. Self-discipline requires self-mastery, self-control, self-responsibility, and self-direction.
2. Integrity
The second trait that all successful entrepreneurs must possess is integrity.
Perhaps the most valued and respected quality you can develop is a reputation for absolute integrity. Be perfectly honest in everything you do and in every transaction and activity. Never compromise your integrity. Remember that your word is your bond and your honor is everything when it comes to your business. All successful business is based on trust.
Your success in becoming an entrepreneur will be determined solely by the number of people who trust you, are willing to work for you, give you credit, lend you money, buy your products and services, and help you during difficult times. Your character is the most important asset that you develop in your entire life, and your character is based on the amount of integrity you practice.
3. Persistence
The third trait that all successful entrepreneurs must possess is persistence. Persistence is the iron quality of character. Persistence is to the character of man as carbon is to steel. It is an indispensable quality that goes hand in hand with all great success in life.
4. A Clear Sense Of Direction
The fourth trait that all successful entrepreneurs must possess is a clear sense of direction.
Because of the turbulence and rapid change in today's marketplace, most business owners have been reduced to operating day-by-day, almost like firefighters.
They are totally preoccupied with short-term problems and the need to get short-term sales and profits. They intend to spend more time thinking and planning for the future, but they don't ever seem to get around to it.
This is not for successful business owners. You need to set clear targets for yourself and for every part of your business. In fact, perhaps your most important responsibility to your people is to give them a clear sense of direction in their work.
5. Decisive And Action Oriented
The final trait that all successful entrepreneurs must possess is being decisive and actionoriented. They must think and make decisions quickly. They discipline themselves to take action and to carry out the decisions they have made. They move fast and they get quick feedback from their actions. If they find they have made a mistake, they quickly self-correct and try something else.
The key to triumph is for you to try.
Successful people are decisive and they try far more things than other people do.
If you try far more different ways to be successful, the odds are that you will eventually find the right way for you, at the right time.
4. (a)What is a paragraph? Explain the important components of paragraph with suitable examples.
ANS: A paragraph is a component of fictional prose and non-fiction writings.
When writing essays, research papers, books, etc., new paragraphs are indented to show their beginnings. Each new paragraph begins with a new indentation.
The purpose of a paragraph is to express a speaker's thoughts on a particular point in a clear way that is unique and specific to that paragraph. In other words, paragraphs shouldn't be mixing thoughts or ideas. When a new idea is introduced, generally, a writer will introduce a new paragraph.
1 Structure
All paragraphs have the same general structure. You will begin with a topic sentence that gives the reader a general idea of what your paragraph will cover. Next, you will have supporting sentences that expand on the main idea presented in the topic sentence. To do this, you may need to use research or give examples. Last, you will have a concluding sentence that wraps up the paragraph. Without this basic structure, the paragraph will not have a logical flow, making it difficult to understand.
2 Transitions
Paragraphs often require a transition phrase in the topic sentence, concluding sentence or both sentences. This helps your reader know that you will move from one piece of information to the next, improving the clarity of your writing. These phrases also help your reader see connections between data and examples. Some common transitions might include "in contrast," "for instance" or "in conclusion." You can also use sequential transitions for paragraphs with a series of examples, such as "first," "second" and "lastly." These types of transitions act as guideposts for your reader, helping her navigate your essay.
3 Content
To create a good paragraph, you also need quality content. Do not try to fill an essay or research paper by repeating what you already presented or including irrelevant information. If you cannot find enough information to fill your paper, you may need to rethink your topic or approach it from a different angle. As well, you should make sure that you use research from quality sources to show the credibility of the content.
4 Evaluating Components Once you finish writing, whether two paragraphs or a multi-paragraph paper, you need to evaluate what you have. Although you need to look at each paragraph component individually to make sure it works well, read your entire essay to evaluate the strength of your paragraphs. Ask yourself if it reads logically. Do the paragraphs flow easily from one to the next with the use of transitions? Do you have paragraphs that repeat information? Did you quote your references and cite them as needed? When you have strong paragraphs, your essay should read easily and your reader should have a better understanding of the topic when she puts down your paper.
(b)You are in charge of purchase for ABC automobiles. Last week you made an order with Aero Enterprises, which is still pending. Write a letter to the manager of Aero Enterprises for the cancellation of the order due to delay.
ANS:
Khaoli, Bareilly, 28th May, 200X To Aero Enterprises Bara Bazar, Bareilly. Sub : Cancellation of Order. Dear Sir, On 8th May, 2OXX I ordered your firm to supply 12 items and their accessories. It was agreed by you to
deliver the goods upto 20th May, XX. But I am sorry to inform that the same have not been supplied to
me so far. The due date has already elapsed. It has caused a great loss to my goodwill and credibility
in the market. So I am compelled to purchase the required goods from other dealers. Under these
circumstances, my order may please be treated as cancelled.
Thanking You, Yours Faithfully xyz
5. Write short notes on the following:
(a)Business blueprint
ANS: The SAP business blue print is a detailed description of company's business processes and system requirements; The SAP MM Business Blueprint template focuses on understanding, authenticating and documenting project scope, specifications. Identify development needs which could result in the need for a form, report, enchantment or workflow. Consider the "4 M's" in Your Start-up Blueprint
Operations management can be broken doen into the 4 M's, each with its own sub-components:
Money: budget, cash flow, financial systems, point-of-sale systems, banking, taxes, and audit
Methods: policies and procedures
Machines: equipment, property, leases, msurance, reparr and maintenance, and capital replacement
Manpower: human resources, whether employees or contractors
Your start-up blueprint affects all aspects of planning and running your business, from time management to budgeting. The following components should be considered when developing your operations plan.
Money
Budget. The budget for your policies and procedures in your operations plan should be written and revised as you consider each aspect of your business operations. Try to be as accurate as possible in your budget, even though most of your numbers will initially be estimates.
Methods
Day-to-day operations. Describe how you will run your business. In general, what will your business do from day-to-day? How will these activities be done? Who will do them? It's vital to consider these questions when crafting your start-up blueprint.
Industry standards and regulations. Are there any that affect your day-to-day operations? Would it benefit your organization to be certified in any way (Organic, ISO 2000, industry association certification)?
Quality of service standards. Are you setting any? If so, how will you monitor and maintain these standards?
Environmental standards/social responsibility guidelines. Are you setting these types of standards for your business? Are they part of your marketing efforts?
Machines
Facility. How does your facility fit into your operations plan? Everything from the access and size of your storage area(s) to the hours of operation, to the location of fire exits, needs to be considered. Ensure you are compliant with business licences, your lease, and zoning bylaws.
Equipment/vehicles. Do you or your staff require training or certification to operate any required equipment and/or vehicles? Do you have the space required to store your equipment and/or vehicles? What power consumption do they require? Do you have or need to create safety policies and procedures?
Telecommunications. Some small businesses start with a single cell phone, while others need an automated phone tree system.
Inventory/supplies/procurement. Do you have space to store and stock your inventory? Do you require fixtures, display racks, or shelving? Do you have insurance to cover any potential loss or damage to your inventory? Does your inventory require any specific environmental conditions, such as temperature or humidity?
Information management and technology. Are you able to assess, procure, configure, and operate the computers, software programs, point-of-sale systems, or other information technology required in the operation of your business? Do you need outside expertise to assist you? Do you have a plan for what to do if and when something doesn't function properly?
Utilities. How are your utilities integrated into your lease? How often do you pay these? Do you have a contingency plan if prices increase suddenly?
Insurance. Ensure you are covered in the event of loss of property, breakdown of equipment, liability ( directors/key personnel), or interruption of business.
Security. How will you protect your staff and money? Is security included in your lease agreement?
Manpower
Suppliers. Who are they, who deals with them, and what are their fulfillment timelines? Do you have alternative suppliers or backup plans if your regular suppliers are not able to provide the materials you need to produce your products and/or services?
Customers. Who are they? What is your relationship with them? How will you communicate with them? How will you deliver your products and/or services to them?
Staff/management. Explain how you will recruit, retain, and motivate employees, if and when required. How will you manage their schedules, and will you have a contingency plan in the event that employees are unable to work? How will you monitor and conduct performance planning? How will you plan for vacations? Are there any union issues that you need to be aware of and accountable to? Refer to our Human Resources-Starting section for more information.
(b)Memo
ANS: A memo, short for memorandum, is usually a small piece of written information used in business environments for interoffice communication. Its core purpose is to give instructions or serve as a reminder of events, actions or decisions. The primary motive behind memo writing is to broadcast information to a large group of people.
A few other ways in which memos are used are:
To recount an event or piece of information
To send a reminder
To pass or circulate information
To highlight an event
To keep an official record of anything
Now that you know what a memo is let's dig deeper into the process of memo writing.
WHAT IS MEMO WRITING?
Barbara Diggs-Brown, a communications expert from American University, says memos are most effective when they are "short, concise, highly organized, and timely".
In other words, memo writing should be clear and focused. When writing a memo, get to the point quickly and don't provide unnecessary details.
A memo shouldn't confuse the reader. It should anticipate and answer any questions the reader may have. The tone of a memo is important. Try to keep it informal and friendly. As with any written communication in the workplace, double-check your memos for sensitive information before you forward them to others.
6. Differentiate between the following:
(a)Facts and Opinions
ANS:
| BASIS FOR COMPARISON | FACT | OPINION |
|---|---|---|
| Meaning | Fact refers to something that can be varified or proved to be true. | Opinion refers to a judgement or belief about something. |
| Based on | Observation or research. | Assumption or personal view. |
| What is it? | Objective reality | Subjective statement |
| Verification | Possible | Not possible |
| Represents | Something really happened | A perception about something |
| Change | Universal | Differs from person to person |
| Words | Shown with unbiased words. | Expressed with biased words |
| Debatable | No | Yes |
| Influence | Facts has the power to influence others. | Opinion does not have the power to influence others. |
(b)Private and Public limited company
ANS:
A private limited company is a business entity that is held by private owners. This type of entity limits the owner's liability to their ownership stake, and restricts shareholders from publicly trading shares.
Advantages of a Private Limited Company
Members: You can start a private limited company with a minimum of only 2 members (and maximum of 200), as per the provisions of the Companies Act 2013.
Limited liability: The liability of each shareholder or member is limited. This means that if the company runs into a loss, the company shareholders are liable to sell their company shares to clear the debt or liability. The individual or personal assets of shareholders or members are not at risk.
Perpetual succession: As per company law, perpetual succession means that the company continues its existence even any owner or member dies, goes bankruptcy, exits from the business and transfers his shares to another person.
Prospectus: Prospectus is a detailed statement that must be issued by a company that goes public. However, private limited companies do not need to issue a prospectus because the public is not invited to subscribe for the shares of the company.
Number of directors: A private limited company needs a minimum of only 2 directors. At least one director on the board of directors must have stayed in India for a total period of not less than 182 days in the previous calendar year. The directors and the shareholders can be the same people.
Capital: Minimum share capital required is only Rs. 1 lakh.
Disadvantages of a Private Limited Company
The shares in a private limited company cannot be sold or transferred to anyone unless other shareholders agree on the same.
There is no option to invite public to subscribe to the shares.
It is mandatory that you should mention Pvt. Ltd. at the end of a company name.
WHAT IS A PUBLIC COMPANY?
A public company is a company that has permission to issue registered securities to the general public through an initial public offering (IPO) and it is traded on at least one stock exchange market. A public company is not authorised to begin its business operations just upon the grant of the certificate of incorporation. In order to be eligible to run as a public company, it should obtain another document called a trading certificate.
Advantages of a Public Limited Company
Members: In order for a company to be public , it should have a minimum of 7 members (maximum unlimited).
Limited liability: The liability of a public company is limited. No shareholder is individually liable for the payment. The public limited company is a separate legal entity, and each shareholder is a part of it.
Board of Directors: A public company is headed by a board of directors. It should have a minimum of 3 and can have a maximum of 15 board of directors. They are elected from among the shareholders by the shareholders of the company in annual general meetings. The elected directors act as representatives of the shareholders in managing the company and taking decisions. Having a bigger board of directors therefore benefits all shareholders in terms of transparency as well as fostering a democratic management process.
Transparency: Private limited companies are strictly regulated and are required by law to publish their complete financial statements annually to ensure the true financial position of the company is made clear to their owners (shareholders) and potential investors. This also helps to determine the market value of its shares.
Capital: A public company can raise capital from the public by issuing shares through stock markets. Public companies can also raise capital by issuing bonds and debentures that are unsecured debts issued to a company on the basis of financial performance and integrity of the company.
Transferable shares: A public limited company's shares are purchased and sold on the market. They are freely transferred among the members and the people trading on stock markets.
Disadvantages of going public:
Prospectus: For a public company, issuing prospectus is mandatory because the public is invited to subscribe for the shares of the company.
Expensive: Going public is an expensive and time consuming process. A public company must put its affairs in order and prepare reports and disclosures that match with SEBI regulations concerning initial public offerings (IPO). The owner has to hire specialists like accountants and underwriters to take the company through the process.
Equity Dilution: Any company going public is selling a part of the company's ownership to strangers. Each bit of ownership that the owner sells comes out of their current equity position. It is not always possible to raise the amount of money that you may need to operate a public corporation from shares, so company owners should hold at least 51 percent of the ownership in their control.
Loss of Management Control: Once a private company goes public, managing the business becomes more complicated. The owner of the company can no longer make decisions independently. Even as a majority shareholder, they are accountable to minority shareholders about how the company is managed. Also, company owners will no longer have total control over the composition of the board of directors since SEBI regulations place restrictions on board composition to ensure the independence of the board from insider impact.
Increased Regulatory Oversight: Going public brings a private company under the supervision of the SEBI and other regulatory authorities that regulate public companies, as well as the stock exchange that has agreed to list the company's stock. This increase in regulatory oversight significantly influences management of the business.
Enhanced Reporting Requirements: A private company can keep its internal business information private. A public company, however, must make extensive quarterly and annual reports about business operations, financial position, compensation of directors and officers and other internal matters. It loses most privacy rights as a consequence of allowing the public to invest in its stock.
Increased Liability: Taking a private company public increases the potential liability of the company and its officers and directors for mismanagement. By law, a public company has a responsibility to its shareholders to maximize shareholder profits and disclose information about business operations. The company and its management can be sued for self-dealing, making material misrepresentations to shareholders or hiding information that federal securities laws require to be disclosed.
