Stock Market Game

What is a Company

Company – A business or association usually formed to manufacture or supply products or service for profit. Can be:▪ Partnership▪ Limited Liability Partnership (LLP)▪ Corporation▪ Sole Proprietor

Partnership

In a partnership – Partners share the profits or losses of the business in which they have invested

Personally liable for company debt Your assets (things that you own) will

cover the company debt

Limited liability Partnership

Transfers much of the firm’s personal liability from the partners to the partnership

Public Corporation

Is a company with publicly traded shares that anyone can buy in a stock market.

Is also legally separated from the stockholders (people that own the stock) and the managers that run it

Stock holders own the company

Corporation Advantages

Stockholders are not responsible for the company’s debt

A corporation continues to exist even if the stockholders or managers change

Stockholders can easily sell their ownership shares through the stock market

Private Corporation

May be owned by an individual Or privately sell stocks to fund the

business Stocks are not sold publicly on the

stock market

Sole Proprietor

Company is owned and run by one individual who receives all of its profits and bear all of its losses.

Owner is personally liable for all of the companies debt

Stocks

Initial Public Offering – IPO Initial sale of stock to the public by

investment bankersUnderwriter – Investment banker

that buys an entire new securities issue from a company and resells it

Stock Exchanges

3 Major stock markets1. NYSE – New York Stock Exchange2. NASDAQ – National Association of

Securities Dealer Automated Quotation3. AMEX- American Stock Exchange

Types of Stock

Common Stock Preferred Stock

Common Stock

Shares of the company do not guarantee a dividend (Part of the companies profit that are shared with the stockholder)

Dividend may be more then preferred stock holders

Right to vote for Board of Directors Right to vote at Annual Meeting

Preferred Stock

Guaranteed dividend No voting rights

Regulating Agency

Securities and Exchange Commission (SEC)

Stock Terms

Earnings – The amount of money that remains after subtracting the companies expenses from its revenue

Investor – Someone who risks funds with the hope of it increasing in value

Corporations

Registered by a state and operates apart from its owners

Three Types1. C-Corporation2. S-Corporation3. Non-Profit Corporation

C-Corporation

Pays taxes on earnings Shareholders pay taxes as well File Certificate of Incorporation with

the state Issue stocks

Shareholders – Owners of Corporation Required to have a Board of

Directors

C-Corporation

Advantages Status – Corporations get help getting

loans Limited Liability – Only liable up to the

amount of their individual investment Perpetual Existence – Continuous life Owners can create pension and

retirement funds and offer profit sharing Tax Advantage – Deduct certain expenses

from their reported income (Salaries and Contribution to benefit plans)

C-Corporation

Disadvantages Expensive to start up – Cost $500 to

$2500 to create Taxed – Corporations income is heavily

taxed▪ Corporation pay tax on profits▪ Shareholders pay tax on dividends

Subchapter S Corporation

Taxed like a partnership Avoids double taxation

Advantage Profits taxed only once at shareholders

personal tax rate S Corp is not a taxpaying entity

Subchapter S Corporation

Disadvantage Can have no more than 75 stockholders

who must be US citizens Only have one class of stock Cash businesses are S Corps▪ If business produces enough cash, the form

works▪ If business shows a large taxable profit but

has not generated enough cash to cover the taxes, the owners must pay out of their earnings

Nonprofit Corporation

Businesses that benefit certain causes in the community

Make money for reasons other than the owner’s profit

Business can make profit, however, the profit must remain within the company and not be distributed to shareholders

Limited Liability Company

Benefits Simpler to start up than a corporation Allows for flexibility of a partnership

structure Protects it owners with the limited

liability of a corporation Not subject to double taxation Not limited on the number of members

or their status

Limited Liability Company

Company whose owners and managers enjoy limited liability and some tax benefits, but it avoids some restrictions associated with S Corporation