ASSIGNMENT # 1

SUBMITTED BY : WALEED KHALID

SUBMITTED TO : PROF FAISAL BALOCH

ROLL NUMBER ; S4F13BBAM0028

SUBJECT : CAPITAL MANAGEMENT

UNIVERSITY OF CENTRAL PUNJAB

Four main types of corporations :

1. C corporations
2. S corporations
3. Limited Liability Companies (LLCs)
4. Nonprofit Organizations
C Corporations
C corporation refers to any corporation that, under United States federal income
tax law, is taxed separately from its owners . A C corporation is distinguished from
an S corporation, which generally is not taxed separately. Most major companies
(and many smaller companies) are treated as C corporations for U.S. federal
income tax purposes. A C corporation has no limit on the number of shareholders,
foreign or domestic. Any distribution from the earnings and profits of a C
corporation is treated as a dividend for U.S. income tax purposes. Exceptions apply
to treat certain distributions as made in exchange for stock rather than as dividends.
Such exceptions include distributions in complete termination of a
shareholder's interest and distributions in liquidation of the corporation.
S Corporations

S corporations are merely corporations that elect to pass corporate income, losses,
deductions, and credit through to their shareholders for federal tax purposes. Like a
C corporation, an S corporation is generally a corporation under the law of the state
in which the entity is organized. For federal income tax purposes, however,
taxation of S corporations resembles that of partnerships. Thus, income is taxed at
the shareholder level and not at the corporate level. Payments to S shareholders by
the corporation are distributed tax-free to the extent that the distributed earnings
were not previously taxed. Also, certain corporate penalty taxes (e.g., accumulated
earnings tax, personal holding company tax) and the alternative minimum tax do
not apply to an S corporation. In order to make an election to be treated as an S
corporation, the following requirements must be met:

1. Must be an eligible entity (a domestic corporation, or a limited

liability company which has elected to be taxed as a corporation).
2. Must have only one class of stock.
3. Must not have more than 100 shareholders.
Limited Liability Company (LLC)
An LLC is a flexible form of enterprise that blends elements of partnership and
corporate structures. It is a legal form of company that provides limited liability to
its owners in the vast majority of United States jurisdictions. The primary
characteristic an LLC shares with a corporation is limited liability, and the primary
characteristic it shares with a partnership is the availability of pass-through income
taxation. It is often more flexible than a corporation, and it is well-suited for
companies with a single owner.
Nonprofit Organization
A nonprofit organization is an organization that uses surplus revenues to achieve its
goals rather than distributing them as profit or dividends. While not-for-
profitorganizations are permitted to generate surplus revenues, they must be
retained by the organization for its self-preservation, expansion, or plans.

Sources of capital for corporations :

1. Bootstrapping. Self-funding from your savings (if you have it) is always preferred.
Advantages: no time going hat-in-hand to investors and you dont have to relinquish
any control in your company. For more on how to bootstrap, check out Bootstrap
Business by Rich Christiansen, who has launched nearly 30 companies by that
method.
2. Friends and family. Tap your inner circle before expanding your horizons. As a
rule of thumb, professional investors like to see real skin in the gameyour own, of
that of people who trust you.

3. Small business grants. This bucket often gets overlooked, but it should be a major
focus thanks to the Obama administrations initiatives to foster new alternative-energy
sources and other technological breakthroughs.
4. Loans or lines of credit. If your company needs only a temporary or small infusion
of cash, try for a Small Business Administration loan (offered at a lower interest rate
because it is guaranteed by the government) or a bank line of credit.
5. Incubators. A start-up incubator is a company, university or other organization that
ponies up resourceslaboratories, office space, consulting, cash, marketingin
exchange for equity in young companies when they are most vulnerable.
6. Angel investors. For those looking for $25,000 to $250,000, angel networks can
come in handy. Networking is critical here, and you need to find angels who
understand your industry and share your passion. Ive been on the selection committee
of an angel group for year.
7. Venture capital. As a rule of thumb, dont try this one in the earlier stages; in fact,
dont try it unless you need more than $1 million. VCs take their pound of flesh in
equity and control
 8.Form a partnership. A more established company may have a strategic interest in
helping to develop your productand be willing to advance funding to make it
happen.

Types of stocks :
Common Stock
Common stock is as it sounds, common. When people talk about stocks they are
usually referring to common stock, and the great majority of stock is issued is in this
form. Common stock represent ownership in a company and a claim on a portion of
that companies profits (dividends). Investors can also vote to elect the board members
who oversee the major decisions made by management.

This risk can be greatly reduced by owning many different well established companies
(diversification) that have solid financial statements and a history of strong earnings.

Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesnt
come with the same voting rights. With preferred shares, investors are usually
guaranteed a fixed dividend. Recall that this is different than common stock, which
has variable dividend payments that fluctuate with company profits. Unlike common
stock, preferred stock doesnt usually enjoy the same appreciation (or depreciation in
market downturns) in stock price, which results in lower overall returns. One
advantage of preferred stock is that in the event of bankruptcy, preferred shareholders
are paid off before the common shareholder (but still after debt holders).

Growth Stocks

Growth stocks are stocks of companies with profits that are increasing quickly. This
increase in profits is reflected in the rise in the companys stock price. These
companies often reinvest the profits and pay little to no dividends to stock owners. In
doing so, they hope that the growth in stock price is enough to keep stockholders on
board.

TYPES OF BONDS
This section will focus on the various types of bonds that a company might issue.

Bonds can be classified in the following categories:

 1. Fixed rate: Fixed rate is an interest rate that remains fixed either for the entire
term of the bond or part of the term. This category includes bonds with fixed
coupons.

2. Floating rate: Floating rate is an interest rate that is allowed to rise up and down
in sync with the market or together with an index. Also regarded as variable
interest rate.

In the financial market of Pakistan, bonds are either issued by the Government or
Corporate entities.

Government Bonds

Government bond is a debt security loaned by a government to assist government

spending, most often issued in the countrys local interest.

The various types of Government bonds issued by the Govt. of Pakistan are as
follows:

Pakistan Investment Bonds

US Special Dollar Bonds

Wapda Bonds

National Saving Bonds

and Sukuk

Corporate Bonds

Corporate Bond is a debt security which is issued by company and sold to investors to
meet its financial requirements. In Pakistan this is commonly known as Term Finance
Certificate (TFC). Corporate Bonds are normally issued for a specified time period
with an assurance to return the principal amount of the bond money including interest
to the bondholder.

When someone buys a bond, he/she is lending money to the company that issued it.
The company ensures to return the money, on a specified maturity date. Till that time,
it also pays a stated rate of return, which usually occurs semiannually. The interest
payments collected from corporate bonds are taxable. Unlike shares, bonds do not
provide an ownership interest in the issuing company.