Title LM01 Organizational Forms, Corporate Issuer Features, and Ownership IFT Notes.pdf ✅

LM01 Organizational Forms, Corp Issuer Features, and Ownership 2025 Level I Notes © IFT. All rights reserved 1 LM01 Organizational Forms, Corporate Issuer Features, and Ownership 1. Introduction ........................................................................................................................................................... 2 2. Organizational Forms of Businesses ............................................................................................................ 2 3. Key Features of Corporate Issuers ................................................................................................................ 4 4. Publicly vs. Privately Owned Corporate Issuers ...................................................................................... 6 Summary ...................................................................................................................................................................10 Required disclaimer: IFT is a CFA Institute Prep Provider. Only CFA Institute Prep Providers are permitted to make use of CFA Institute copyrighted materials which are the building blocks of the exam. We are also required to create / use updated materials every year and this is validated by CFA Institute. Our products and services substantially cover the relevant curriculum and exam and this is validated by CFA Institute. In our advertising, any statement about the numbers of questions in our products and services relates to unique, original, proprietary questions. CFA Institute Prep Providers are forbidden from including CFA Institute official mock exam questions or any questions other than the end of reading questions within their products and services. CFA Institute does not endorse, promote, review or warrant the accuracy or quality of the product and services offered by IFT. CFA Institute®, CFA® and “Chartered Financial Analyst®” are trademarks owned by CFA Institute. © Copyright CFA Institute Version 1.0
LM01 Organizational Forms, Corp Issuer Features, and Ownership 2025 Level I Notes © IFT. All rights reserved 2 1. Introduction This learning module covers:  Different organizational forms of business – sole proprietorship, general partnerships, limited partnerships, and corporations.  Key features of corporate issuers  Differences between publicly and privately owned corporate issuers 2. Organizational Forms of Businesses Common forms of business structures include:  Sole proprietorship  General partnership  Limited partnership  Corporation To understand the differences between these business structures we will focus on four areas:  Legal relationship: the legal relationship between the owners and the business.  Owner-operator relationship: the relationship between the owners of the business and those who operate the business.  Business liability: the extent to which owners are liable for the actions undertaken by the business.  Taxation: the tax treatment of profits generated by the business.  Access to financing: the ability to raise capital to fund expansion and distribute risks. Sole Proprietorship (Sole Trader) A sole proprietorship is the most basic type of business structure. In a sole proprietorship, the owner personally funds the capital required to operate the business and retains full control over the business’s operations. The owner also fully participates in the financial returns and risks of the business. An example of a sole proprietorship is a family-owned store. The key features of a sole proprietorship are:  Legal relationship: It has no legal identity and is considered an extension of the owner.  Owner-operator relationship: It is an owner operated business and the owner retails full control of the business.  Business liability: The owner has unlimited liability. He retains all risk associated with the business and can be held financially responsible for all debt the business owes.  Taxation: Profits from the business are taxed as personal income.

LM01 Organizational Forms, Corp Issuer Features, and Ownership 2025 Level I Notes © IFT. All rights reserved 4  Access to financing: Business growth is limited by the financing capabilities and risk appetite of the partners. Also, GP’s competence and integrity in running the business affects the business. Corporation (Limited Companies) A corporation is an evolved model of the limited partnership. It is also called a limited liability company (LLC) or limited company in many countries. Like a limited partnership, owners in a corporation have limited liability; however, corporations provide greater access to capital and expertise needed to fuel growth. Examples of corporations are national or multinational conglomerates. The two main types of corporations are:  Public limited companies  Private limited companies The main difference between the two are the number of shareholders and whether the shares are listed on a stock exchange. In some countries like the UK, a corporation is categorized as public if the shareholders are greater than 50. While in many other countries, like the US, a corporation is categorized as public if the company shares are listed on an exchange. We will discuss the key features of a corporation in the next section. 3. Key Features of Corporate Issuers Legal relationship: A corporation is a legal entity separate and distinct from its owners. Corporations have many of the same rights and responsibilities as an individual. For example, corporations can enter into contracts, hire employees, borrow and lend money, and pay taxes. Large corporations frequently conduct business in many different geographic regions and are subject to regulatory jurisdictions where either:  the company is incorporated,  business is conducted, or  the company’s securities are listed Owner-operator separation: A key feature of corporations is the separation between those who own the business – the shareholders, and those who operate it – the board of directors and company management. The shareholders elect a board of directors to oversee business operations. The board hires the CEO and senior management for day-to-day operations of the company. This separation of operating control from ownership enables corporations to obtain financing from a large