H350 Chapter 2 Healthcare Business Basics

How does a benefit corporation (B corporation differ from a traditional for profit corporation?

A B-corporation considers social and environmental goals over shareholder wealth and maximization.

What is the difference between a C corporation and an S corporation?

A C corporation is subject to double taxation, but an S corporation meets certain requirements and files an application with the IRS so that it is taxed like a partnership or proprietorship.

Why is the ability to issue tax-exempt debt an advantage for not-for-profit corporations?

Because they can set lower interest rates on debt to entice lenders than FP's can.

What pressures recently have been placed on not-for-profit hospitals to ensure that they meet their charitable mission?

IRS form 990: Reports governance and charitable activities Schedule H: provides information on the hospitals community benefits Bills requiring hospitals to meet a minimum standard of care for the indignent to retain tax exempt status AHA guidelines

What factors tend to reduce the agency problem?

Incentive programs such as stock options, performance based bonus plans, and the threat of removal or takeover

What is the difference in organizational goals between investor-owned and not-for-profit businesses?

Investor owned business primary goal is to maximize shareholder wealth; whereas the organizational goal of a NFP is given in their mission statement (typically good of the community). However; their financial goals are the same: Maintain financial viability, and have financial resources to offer new services and technologies.

What are the major differences between investor-owned and not-for-profit corporations?

Investor-owned corporations are subject to double taxation, have shareholders, residual earnings are paid to the shareholders in dividends, and are publicly traded via stocks NFP's are tax exempt, are not publicly traded, and residual earnign cannot be paid as dividends but have to be reinvested in the company. "owned-by the community"

What advantage accrues to businesses that qualify for tax exempt contributions?

It encourages people to contribute to NFP's for the tax deductions and gives NFPs a source of financing contribution that FP's do not have.

What are the different types of partnerships?

Limited partnership: In which general partners have the most control and unlimited liability, adn limited partners have little control and liability is limited to their initial contribution Limited Liability partnership: partners have joint liability for the company's actions, but partners are only liable for their own individual malpractice actions.

Why must a finance book consider taxes?

The value of an investment depends on the usable cash flow that the investment is expected to provide, and taxes affect usable cash flow.

What is the agency problem, and how does it apply to investor owned firms?

Where managers are motivated to act in their own interests rather than the interests of shareholders. Occurs in large investor owned firms where the managers typically hold a small number of shares in the firm.

1. What are the four basic forms of business organization and how do they differ?

a. Proprietorship: a simple unincorporated business owned by one person b. PARTNERSHIP: Unincorporated business that is created and owned by two or more people c. Corporation: a legal business entity that limits liability and separates your personal and business assets (subject to double taxation) d. Hybrid Forms: A legal business entity that has features associated with both partnerships and corporations

What is the primary tax advantage of not-for-profit corporations?

exemption from taxes such as property, income, and sales tax.