7.1 What Are Firms? Flashcards
What are ethe 6 different ways a firm can be organized?
- Single proprietorship - Ordinary Partnership - Limited Partnership - Corporation - State-Owned Enterprise - Non-Profit Organization
What is a single proprietorship?
A firm that has one owner who is personally responsible for the firm’s actions and debts.
A single proprietorship has one owner–manager who is personally responsible for all aspects of the business, including its debts. Many tradespeople such as painters, contractors, plumbers, and electricians have small businesses of this type.
What is an ordinary partnership?
A firm that has two or more joint owners, each of whom is personally responsible for the firm’s actions and debts.
An ordinary partnership has two or more joint owners, each of whom is personally responsible for all the partnership’s debts. Many start-up businesses have this basic structure, at least while they are small.
What is a limited partnership?
The limited partnership which is less common than an ordinary partnership provides for two types of partners.
General partners take part in the running of the business and are liable for all the firm’s debts. Limited partners take no part in the running of the business, and their liability is limited to the amount they actually invest in the enterprise.
What is a corporation?
A firm that has a legal existence separate from that of the owners.
A corporation is a firm regarded in law as having an identity of its own; its owners are not personally responsible for anything that is done in the name of the firm, though its directors may be. The shares of a private corporation are not traded on any stock exchange (such as the Toronto or New York Stock Exchanges), whereas the shares of a public corporation are.
What is a state-owned enterprise?
A firm that is owned by the government. In Canada, these are called Crown corporations.
A state-owned enterprise is owned by the government but is usually under the direction of a more or less independent, state-appointed board. Although its ownership differs, the organization and legal status of a state-owned enterprise are similar to those of a corporation. In Canada, such state-owned enterprises are called Crown corporations.
What is a Non-profit organization?
Non-profit organizations are established with the explicit objective of providing goods or services to customers, but any profits generated remain with the organization and are not claimed by individuals. In many cases, some goods or services are sold to consumers while others are provided free of charge. Non-profit firms therefore earn their revenues from a combination of sales and donations. An example is your local YMCA—it sells memberships to consumers for use of the health facilities, but it also raises funds to provide free services to needy individuals in the community.
What is a Multinational enterprise (MNE)?
Firms that have operations in more than one country.
Firms that have locations in more than one country are often called multinational enterprises (MNEs). Having locations in several countries is very unusual for single proprietorships and ordinary partnerships, but is common for limited partnerships (such as large law and accounting firms) and very common for large corporations.
Other then firms, what other entities provide goods and services?
Many government agencies provide goods and services, such as defense, roads, primary and secondary education, and healthcare services. In most of these cases, goods and services are provided to citizens without charging directly for their use; costs are financed through the government’s general tax revenues.
What do we call the money a firm raises from running its buisness?
The money a firm raises for carrying on its business is sometimes called its financial capital
What is real capital?
real capital, which is the firm’s physical assets, such as factories, machinery, offices, and fleets of vehicles.
What are the types of financial capital used by firms?
The basic types of financial capital used by firms are equity and debt. Equity is the funds provided by the owners of the firm. Debt is the funds borrowed from creditors (individuals or institutions) outside the firm.
What are equities?
A corporation acquires funds from its owners in return for stocks, shares, or equities (as they are variously called). These are basically ownership certificates. The money goes to the company and the shareholders become owners of the firm, risking the loss of their money and gaining the right to share in the firm’s profits.
What are Dividends?
dividends
Profits paid out to shareholders of a corporation.
What are retained earnings?
One easy way for an established firm to raise money is to retain current profits rather than paying them out to shareholders.
Financing investment from such retained earnings adds to the value of the firm and hence raises the market value of existing shares.
