Limited liability in partnership investments and insider trading regulation

¶ … partnership allows some of the inestors to limit their liability. In modern organizations, a limited partnership may allow some of the partners or investors (stakeholders) to limit their liability. Under this arrangement, one of more stakeholders are given designated titles as General Partners and have unlimited liability for the organization (debts, assets, etc.). The other stakeholders are titled limited partners and have an overall liability that equals only their initial contribution. This makes different stakeholders liable for different amounts. Limited partners, however, are typically prohibited from being active within the firm. By-laws of the partnership and state law of incorporation also influence the legal maximum liability of stakeholders (Unifom Partnership Act, 1997).

When does insider trading occur? What government agency is responsible for protecting against the unethical practices of insider trading? Insider trading occurs when an individual trades a stock or security and has access to non-public information about that company. The information is either something intended or simply information in which the public has no access, and the insider is able to use that information from trading securities. In the U.S. trading conducted by corporate officers, stakeholders owning 10% more of the firm's securities, and employees must be reported to the SEC within 48 hours of trading. There are a number of ways that insider trading becomes profitiable. In the U.S. The Securities and Exchange Commission has rules and procedures in place to limit and protect the public from insider trading. It is a federal agency that focuses primarly on federal security law and the regulation of the stock and securities trading industry (Harris, 2003).

Part 3 -- How doe the tax code allow depreciation to contribute to cash flow? Depreciation is a regulated expense that is allowed to be a deduction expense in the tax code. Since depreciation is tax deductible, therefore a tax savings which increases cash flow from the operation. This only works if there is income. Since items have depreciation rules and/or the owner may opt for certain schedules, the faster the depreciation, the larger the tax shield in the earlier depreciation years, and the increase in the cash flow (Baker and Powell, 2005).

For example, let us say we have a small company and $10,000 depreciation deduction with a 35% tax rate. The tax shield is $10,000 X .35 or $3,500. The organization owes the government $3,500 less, so on the books since there is no liability bill, then the $3,500 is additional cash flow.