When companies are owned by individuals it is called a sole proprietorship and when a few ppl start te firm its called as partnership
What is a Corporation ?
Most of the medium sized or large sized companies are corporations where the company is owned by the stakeholders .Initially it will be owned by few top level personnels like the managers and later on when it tries to raise more capital the shares get publicly traded and those companies will become public companies .Most of the corporations in india are public companies
Who owns and runs the corporation?
Although the stockholders own the corporation ,it is run by a board of directors generally appointed by the stakeholders .Some of them may be the personnel from the top management and others are non-executive directors which are not employed by the firm .The board acts in the interest of the stockholders and makes sure the manager operates in the interest of the stockholders
This separation of management and ownership give permanence .even if a manager quits/leaves or replaces the company can continue to function and also the stockholders can sell their stock to any new investor without disrupting the function of the organization
Limited liability
Unlike proprietorship/partnership ,the corporations have limited liability which means that the stockholders cannot be personally held responsible for the company's debts .The stockholders can lose their investment but nothing more
Disadvantages of corporation
In corporations maintaining the machinery and communication with the stakeholders are all time consuming and complex process .Also In India ,there is an additional risk.The company not only pays the tax for the profits ,but also has to pay the dividend distriubution tax that it pays to the dividend holders .In the US ,the company pays tax for their profit and the user pays tax for the dividend received from the company
Role of financial managers
The corporations have several real time assets .This assets include the tangible assets like machinery ,factory etc and intangible assets like goodwill,patent ,technical expertise etc .In order to get more money ,the corporation sells the claims on these assets and the cash it generates which is called as financial assets/securities .
The role of the financial managers is typically between the operations of the firm and the investors who hold the financial assets issued by the firm .The flow starts when the company raises fund from the investors and invest in assets .these assets if turned out to work well would generate a huge cash flow may be greater than the fund invested .This is then returned back to the firm or payed back to the investors .So the financial managers tries to solve two main problems what are the assets the company should invest in and how to raise cash for this investment ? The answer to the first question is called as capital investment /budgeting and the second one is the financing decisions .
Financial managers should not only focus on what assets to invest but also where to invest these assets which would provide adequate returns for the company .Eg: Nestle though is a Swiss company ,many of its factories are spread across different countries .Hence financials managers should know how to value these assets in different currency rates,inflation rates ,tax rates etc .
Different roles in a corporation
Teasurer : treasurer maintains the cash in the firm ,raising new capital and also maintaisn relationship between banks and other stockholders who has invested in the firm
Controller : In a small firm there will only be a Treasurer .But in bigger firms there will be a controller who is mainly responsible for preparing the financial statement ,tas statement and also looks after the accounting process in the firm .The roles of a treasurer and controller are very different
CFO (Chief financial officer )
In bigger firms there is also a CFO who manages /oversees the treasurer /controllers work.He or she will have additional management responsibilities and mostly would be a member of the board of directors .CFO is mainly responsible for managing the capital budgeting process .the ultimate decisions are taken by the board of directors .
