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HKUGA College
S4 Economics
Topic B - Firms and Production (Chapter 3)
Name:
1
...
Definition - Plant
Plant is a physical location where production takes place
...
Plant
∵
firm can exist without a physical location
∴
firm ≠ plant
2
...
3)
P
...
CHan
3
...
Government department
B
...
g
...
3)
P
...
CHan
4
...
3)
Meaning
a legal entity is capable of having legal rights and responsibilities, such as to enter into contracts, to sue and to be sued
limited liability means the liability of the owner of a firm is confined to the amount she has invested in the firm
P
...
CHan
A
...
3)
shareholders
public disclosure NOT required
accounts
set-up procedure
needs the consent of other
partners
-
free
public disclosure required
lower
higher
more simple, less costly
more complicated, more costly
narrowest
wider than sole
proprietorship
P
...
CHan
A
...
∵
some public limited companies do NOT list their shares on any stock exchange
∴
listed company ⊂ public limited company
Topic B (Ch
...
5
ALan V
...
Comparison - Sole proprietorship vs
...
Sole proprietorship over Partnership
II
...
Comparison - Private limited company vs
...
Private limited company over Public limited company
II
...
3)
P
...
CHan
C
...
limited company (Private limited company and Public limited company)
I
...
limited company over “unlimited company”
Advantages
Advantages
-
lower profits tax rate
-
legal entity
-
more simple set-up procedure
-
limited liability
-
stronger incentive to improve efficiency
-
lasting continuity
-
public disclosure of financial information NOT required
-
separation of ownership and management
-
wider source of capital
-
(compared with public limited company ONLY)
closer relationship with employees and customers
Disadvantages
Disadvantages
-
NOT a legal entity
-
higher profits tax rate
-
unlimited liability
-
more complicated set-up procedure
-
limited continuity
-
weaker incentive to improve efficiency
-
NO separation of ownership and management
-
public disclosure of financial information
-
narrower source of capital
-
all partners are legally bound by business decisions of other partners
(applicable to public limited company ONLY)
(applicable to partnership ONLY)
Topic B (Ch
...
7
ALan V
...
U
Sources of capital
Sources of capital
Sole proprietorship
Private limited company
Public limited company
issuing shares
issuing bonds
A
...
Bond
Share
nature
certificate of the ownership of a limited company
status of holders
owners / shareholders
(1)
general meeting (AGM)
priority of capital repayment
in case of liquidation
Topic B (Ch
...
8
ALan V
...
B
...
Issuing bonds
I
...
Issuing bonds over Issuing shares
Advantages
Advantages
-
no interest burden / greater flexibility in retaining profits for future
-
no dilution of existing shareholders’ controlling power
development
-
risk of being taken over unaffected
-
no redemption obligation
Disadvantages
Disadvantages
-
dilution of existing shareholders’ controlling power
-
-
greater risk of being taken over
larger interest burden / lower flexibility in retaining profits for future
development
-
C
...
Buying bonds over Buying shares
Comparison - Buying shares vs
...
obliged to redeem upon maturity
Advantages
Advantages
-
with voting rights in the annual general meeting (AGM)
-
higher priority of getting back capital in case of liquidation
-
possible higher return if the company makes huge profits
-
interest return even company does not make profits
Disadvantages
Disadvantages
-
lower priority of getting back capital in case of liquidation
-
no voting rights in the annual general meeting (AGM)
-
possible no return if the company does not make profits
-
no extra return even company makes huge profits
Topic B (Ch
...
9
ALan V