The paper "Limited Liability Corporation and Limited Liability Partnership" is a good example of an assignment on business. 1. What is a limited liability corporation? What is a limited liability partnership? What are the differences? What are the advantages and disadvantages of each? The advantages of running a limited liability company are in having a separate entity created for the company that shields the owners from liability. This means that should anything happen that would create a financial responsibility for the company, the personal finances of the owner or owners would be protected from litigation.
Another advantage of this form of company structure is taxation flexibility. The members may choose to file taxes through sole proprietorship or partnership, S corporation, or C corporation, allowing for the maximum benefit at tax time. There is considerably less paperwork to running an L. L.C. than a corporation and can be designed with only one member. The disadvantages of an L. L.C. are that raising capital, attracting credit and investors may be difficult because of the nature of the financial shielding. Members may still have to personally guarantee the obligation of the company.
Many states require a fee to be paid annually in order to retain the privilege of running the L. L.C. The unfamiliarity of the nature of the structure may create some difficulties when forming business relationships. In a limited liability partnership, each partner is limited from the misconduct or negligence that might be committed by a partner. Therefore, what one partner agrees to does not obligate the other partner or partners. This protection allows partnerships to form without putting them at risk for behaviors that are outside the scope of the intent of the partnership.
This is used for professional relationships when the function of a partnering relationship, say as a lawyer or accountant, is limited to a specific aspect of the business without control or input on other aspects. A disadvantage of this formation is that any partner may enter into an agreement or create an obligation without the other partner or partners being involved. The main difference between an L. L.C. and an L. L.P. is that the first shields the individual member’ s finances from the obligations of the business, while the second shields the partners from the actions of each other. 2.
What is sensitivity analysis? What is a scenario analysis? How would you apply each one to a potential investment opportunity? How would you use the information from this analysis? Explain. A sensitivity analysis attempts to determine what form of uncertainty has the greatest impact on a quantifiable study. In using this analysis for an investment opportunity, one may find flaws in the way that a mathematical model has been used as a predictor in order to prevent the gaps from affecting the eventual outcome of the investment.
A scenario analysis creates a prediction of possible future events in order to assess the action. This sets up an equation that basically states that if this, then that, that or that could be the possible outcome. In utilizing this concept for a potential investment opportunity, one is assessing how the economy will respond to the action, creating a forecast for the return potential which can be scenario-weighted expected according to the predictions that are made.
In creating the analysis, one would distribute assets in order to best take advantage of the possible outcomes and create protection against the possible problems that may arise. 3. What are some risk management techniques? How would you use portfolio management to assess the risk and return of an investment? Techniques used to establish risk management are based on minimizing the risk that an investor may have in creating a portfolio. Creating quantifiable profiles on investments will allow for creating protection against revealed pitfalls that may affect the performance.
As well, creating profiles that are interested in the overall performance potential in regard to a variety of factors that may affect the performance will guard against risk. The Sharpe ratio is the most well-known quantifiable tool that will measure the way investments will return over the risk-free rate as compared to the overall risk of the portfolio. In using portfolio management, one can establish an overall low risk by balancing high risk with relatively low-risk investments to protect the overall return.
4. Predict how the results would be different based on different risk preferences? If an investor is more interested in high risk with a greater return, the portfolio might perform very well, but the nature of the risks involved would allow for the greater possibility of losses. If a low-risk investor is involved, the returns would be virtually guaranteed, but over a much longer period of time and at a lower rate of return. The best scenario is a medium risk portfolio balance that allows for some higher-risk investments that could produce greater returns, balanced with lower-risk investments that can balance out an unfortunate outcome.
In this scenario, investment in extremely risky ventures would not be prudent, but in higher risks that have good predictors of a positive outcome.