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How Does Business Work

For example: If Mr.. Liana has spare money &IOO, he put the money into the banks, in urn, banks promise to pay him interest at 10% per annum. Meantime, Mr.. Liana decide to run a business, he ask bank to lend he &IOO. The rate of Interest he argues to pay them Is 15% per annum. Hence, Income Is 5, Expenditure Is &10, Profit Is &5. Fixed rate: bank quote you a straight forward rate Floating rate: bank quote you above base or LABOR It is depend on you to choose a rate. Gambling. Different risk have different rate.

More risk, higher rate. Security: the bank will ask for some security for the money It Is lending you. A part of business assets, lands. For the smaller, newer businesses, private house. Investment banks trade in financial securities, such as derivatives. 2. Bonds When a company is established, it can be raise money by issuing Its own paper, a corporate bond. Bonds can be tractable. For example: bond paying 10%, reinvest 11%. Share Capital Before we get Into the technical details of share capital, let’s look an example.

Buy house Bank loan, Your Own Money, value of house. Sales, repay the mortgage, surplus

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on sale, amount you originally risked, profit. The mall different between loan capital and the share capital Is what the lenders want out of it. Loan capital wants their interest payments and their money back. Share capital gets everything that is left or loss all of their money. The providers of loan capital do not have any ownership rights over the company and they do not usually get Involved In Its day to day management.

The providers of share capital are the owners of the business and have absolute power over its operations (which they may delegate to directors). Profit Z. The relationship between the people involved In investing in and running a limited company (share capital) Shareholders Auditors EX. Pl Accounts Directors (AL! Riff) 1 . Shareholders. The shareholders are the owners of the business. For example: divided into 100 shares, you own 25. 25% of its profit and 25% of its assets.

However, you do not own 25% of Its physical assets. You can sell It. In some small company, they will also be responsible for running it. It means that shareholders also be the directors. In a big company, shareholders was not to run the company, purpose was to hold the shares as an investment. Risk The greater the risk, the greater your return If it goes right. The greater the risk, the greater the chance that you will lose everything. Institutions as shareholders Not only Individual can own shares, institutions also can.

Pension scheme, insurance company The stock exchange 1 OFF a company by own (sole traders), Join with one or more people (partnership) Loan capital capital is same (borrow from bank) Money raise from own savings with same risk and return as share capital, but do not call share capital, it is just called ‘capital’ or ‘partners’ capital’ and it is not represented by any sort of certificate that’s tractable on a market. The benefit is less red tape involved with running a sole traders or partnerships. The problem is that you cannot separate the business from the people who run it.

For example: Limited Companies A limited many is a legal “person”. “Limited liability’ means that each shareholder’s liability is limited to the amount as yet unpaid on their shares’. Advantage: separated your business assets from your personal assets. Accounts/financial statements not only for your shareholders, but also public. Three levels of limited company: One is private limited company. Shareholders also the directors of the company, stay closed to the outside world, restrict ownership to family and close friends, shareholders cannot sell their shares without others argue. Both of other two are relative to the Public limited company.

No restriction on who can by shares, available to any member of the public. (Different depending on whether they can be bought and sold on the Stock market, larger company want to be as it can arise funds) 3. Directors The directors are the employees of the company, who direct the operations of the company. A good idea for the directors also is shareholders. Directors must produce an accounts/balancing statements and sent to the shareholders. 4. Accounts (financial statement) Show shareholders two things: whether your company made any money or not during the past years and how does it now stand financially?

Has it got a solid financial base or is it having trouble paying its bills? The financial statements show the situation for the whole company. It plays a role as a method of communication between the directors and the shareholders. It is the way that shareholders can Judge the performance of their directors. 5. The Auditors The auditors’ Job is to take the accounts/balancing statements from the directors, look at them, and decide if they are k and to report that fact to the shareholders. The auditor must be completely independent of the company. They cannot own share in the company.

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