BU340 Managerial Finance I
Assignment 1_01 Introduction to Financial Management
April 25, 2013
Introduction to Financial Management
A special form of partnership, called a limited liability partnership can be utilized under a partnership that allows some of the investors to limit their liability. One or more partners are designated general partners and have unlimited liability for the debts of the firm and other partners are designated limited partners and are liable only for their contribution to the business. On the other hand, limited partners get the benefit of protection from personal liability. This means the limited partner can’t be forced to pay off business debts or claims with personal assets. For example, a limited partner might invest $100,000 in a real estate partnership but have minimal control over business decisions or operations, and normally cannot bind the partnership to business deals. Professionals such as doctors, lawyers or accountants prefer LLPs because they don’t want to be personally liable for another partner’s problems; most common involving malpractice claims. If a partner who loses a malpractice suit for his own mistakes, however, doesn’t escape liability.
Insider trading occurs when someone has information that is not available to the public and then uses this information to profit from trading in a company’s publicly traded securities. Anyone who has knowledge before public dissemination of that information stands to benefit from either good news or bad news. Such activities as insider trading serve no beneficial economic or financial purpose. This practice is illegal and protected against by the Securities and Exchange Commission. Sometimes the insider is a company manager; other times it is the company’s lawyer, investment banker, or even the printer of the company’s financial statements. There has been a long history of Wall Street executives like Ivan Boesky, Dennis Levine, and Michael Milken who were sent to jail for insider trading activities. Just recently on April 16, 2013, SEC charged Richard Bruce Moore with insider trading by using information that he obtained through his job of pitching investment ideas to the Canada Pension Plan Investment Board. Another example is if a CEO of a company sells a stock after discovering that the company will be losing a big government contract next month.