BA101 (Week 1) Chapter 5

Question 0

Unlimited Liability

Answer 0

No limit on debt.

Question 1

Sole Proprietorship

Pros and Cons

Answer 1

Business owned by single owner 
(+)
All earnings go to sole pro.
Easy organization
Complete control
Lower taxes 
(-)
Incurs all losses 
Unlimited liability
Limited fund and skills

Question 2

• Partnership
• List the types
• (Pro and Cons)

Answer 2

-Partnership is co-owned by two or more people.
- General partners/partnership: all partners have unlimited liability.
Limited: liability is limited to cash or property and can not manage.
-(+)
Additional funding
Losses of shared
More specialization
(-)
Control is shared
Unlimited liability
Profits is shared

Question 3

S-corporation

Answer 3

A firm with 100 or fewer owners. It is limited liability but earning is distributed, popular and protects assets.

Question 4

Limited Liability Corporations (LCC)

Answer 4

Hybrid with corporation, lability protections and partnership tax treatments.

Question 5

Corporation

Answer 5

Stated Chartered entity that pays taxes and is legally distinct from owners.

Question 6

• Charter

- Bylaws

Answer 6

• Document used to incorporate a business, contains important aspects of corporation.
• Bylaws are general guidelines for managing a firm.

Question 7

Board of Directors

Answer 7

Elected by stockholders and are responsible for making general policies, elect president and key officers.

Question 8

Agency Problems

Answer 8

Managers do not act as responsible agents for shareholders who own the business.

Question 9

Double Taxation

Answer 9

Corporations suffer corporate taxes and if any profit is distributed as dividends to individuals as personal income tax.

Question 10

Capital Gain

Answer 10

Price received from sale of stock minus the price paid for the stock. (stockholders pay capital gain tax)

Question 11

Equity

Answer 11

Total investment from the firm’s stockholders.

Question 12

Franchise

Answer 12

Arrangement by business owner (franchisor) allows another franchisee to use it’s trademark, name, etc.

Question 13

Type of Franchises

Answer 13

• Distributorship: deal is allow to sell a product produced by a manufacturer. (Ex: Chrysler, ford dealers)
• Chain-Style Business: use trade name of company and follows guidelines related to the pricing and sales of product.
• Manufacturing Arrangement: manufacture product using the formula provided by other company.

Question 14

Pros and Cons of Franchise

Answer 14

(+)
-proven management style 
-Name Recognition
-Financial Support 
(-)
-Sharing profits
-Less control
-Popularity

Question 15

Joint Venture

Answer 15

Agreement between 2 firms about a project.

Question 16

Business Judgment Rule

Answer 16

A case law derived legal principle holding that a corporations directors, managers, employees and other agents with not be liable for their actions if they performed their duties.