[DRAFT] Fifty takeaways from corporate finance

From The Tantri Files — verbatim writing from Prof. Tantri’s WhatsApp messages, with his blessing. In July 2025, after his FCRV course had ended, Tantri began a series of long-form takeaways. Here are the first three.

Why this series exists — in his words

I am starting this series — fifty key takeaways from corporate finance. (There is nothing called FCRV. Please forget it.)

My hope is that these will be useful in your future decision-making. You should be able to use this in all interviews, including non-finance interviews.

— Tantri, July 8, 2025

Takeaway 1 — Risk and return

Normally, you hear this adage that risk and return go together in finance. This is not always true. In nature, high risk and high return do not always come bundled together. You may have options having high risk and low returns as well.

For instance, uninformed investors trading in stock markets is one example of high risk and low returns. Playing Russian Roulette for INR 10,000 is also one such example. (Did you say taking my course also?)

The basic finance principle is that a decision maker should accept high risk only if the expected return is higher. Note expected return. You will never get to decide knowing the actual outcomes (except in cooked-up case studies). Therefore, while evaluating a decision, you should consider risks and expected returns at the time of the decision. The trick is to charge so much for risky projects that, in case you succeed, you make a fortune. What eventually turns out cannot be used for evaluation.

From this point of view, you should be able to see that the US government making 7% on the bailout of banks may not be a great achievement given the risks they took. There was a more than even chance that they would have lost all the taxpayers’ money. Warren Buffett made 39% on the same investments.

You should also use this perspective to evaluate your future teams. Just because some division made money, you cannot call it successful. Next time, they may blow up the entire organization if they are taking too much risk.

If you ask me, how to assess risk — there is only one way. Your understanding of the business and the relevant macros. This is why macro is super important.

From a finance lens, you should be careful about some of the inequality studies. These studies look at the survivors of a risky game (entrepreneurship) and say that these guys have too much money. What they don’t see are the failures who are now waiters in a restaurant (nothing wrong with that). If the reward is not big enough, no one will take these risks and create jobs. Think about this.

Regards, Prasanna

PS: I will convert some of the takeaways into newspaper articles. Please feel free to share this with BILs. You lose nothing by sharing knowledge. Also, IEs, please keep reading newspapers. By the time my Indian Financial System ends, you will be on par or even ahead of BILs with a background. I know that those who are cursing me today for low marks will be sitting in the front row when I offer an elective. I have never understood this.

Takeaway 2 — Forms of organisation, and the limited-liability myth

We then moved on to learn forms of organization. The usual textbook approach is to distinguish between sole proprietary organization, partnership, and corporation on the basis of the idea of limited liability. On paper, limited liability means that a borrower’s personal assets cannot be used to meet business obligations. This is usually touted as a big advantage of corporations.

However, in reality, limited liability is an overhyped idea.

Yes, in the normal course, no lender can touch the promoter’s (loosely owner or controlling shareholder) personal assets. But such a situation does not arise if life is normal. Limited liability should ideally have bite in a bad state. However, lenders, in many cases, find a way of going after the promoters’ assets in case of default.

The easiest way is to allege fraud by the promoter and declare them wilful defaulters. In many cases, banks force promoters to give a personal guarantee. In such cases, courts allow “lifting of corporate veil” (please stay focused, see the word “corporate” ). This allows lenders to go after personal assets.

That is why many founders/promoters buy properties in Dubai, and flee the moment they get into trouble. Think about Gensol, Byju etc.

So, when you get rich and successful, think of legal ways of separating your personal assets. Forming a trust with trustworthy but independent trustees is one way. Don’t be complacent based on textbook versions of limited liability. Those of you who are going to work for family offices will have to think about these issues.

Ask ChatGPT to teach you more about the corporate veil. Again, when a recruiter asks, you should be able to say that we at ISB are not only taught textbook ideas but also are given a glimpse of how these ideas pan out in reality. This can be a good example.

Takeaway 3 — Corporation vs LLPs

LLP stands for limited liability partnership. As the name suggests, these organizations have partners whose liability is limited. There could be general partners with unlimited liability.

Again, the books say, LLP offers the best of both worlds. First, for taxation purposes, it is treated as a partnership firm. In other words, when partnership firms distribute profits, it is taxed only once (CAs, please correct me if I am wrong on this. This is how it was during stone age. I have not read tax after that). However, as we saw in class 10, when a corporation distributes profits, it is taxed twice. Both the corporation and the shareholder pay tax on the same income. Second, liability is also limited in LLP.

Again, if reality is what the book says, we should have seen LLPs everywhere. However, start-ups are rarely incorporated as LLPs.

There is a reason for this. Partners are considered as part of the management. Therefore, it is easy for courts to lift the veil and make the liability unlimited at the drop of a hat. Thus, the limited liability may not exist when required. VCs and other investors dread this possibility. In corporations, at least ordinary shareholders are not considered a part of management. Therefore, the chances of lifting of corporate veil are relatively lower.

From here on, read more to solidify this.

The point is, there are trade-offs. For instance, if you want someone passionate about teaching, the person will have the same passion for setting the exams as well. Whenever someone says something that offers the best of both worlds, treat it with caution and analyse.

Editor’s notes

These three takeaways were sent into the Finance Enthusiasts WhatsApp group between July 8 and July 9, 2025. They are reproduced verbatim, with light formatting (sub-headings, italics for asides, and a single bracketed correction of LLP capitalisation in one place). No words have been added or removed.

This is Part 1 of the series. Tantri promised forty-seven more takeaways. As they appear in the group, we’ll add them here under the same series tag.