ch 4

Question 1

Bus owned and operated by one person. Most are small bus. Many businesses start off as this form of ownership. most pop form of ownership when compared to partnerships and corps. Ranked last in sales revenue.

Answer 1

Sole Propreitorship

Question 2

Form of ownership to bring the most sales revenue. First to last

Answer 2

Corps at $30 trillion
Partnerships at $5 trillion
Sole Proprietorships at $1 trillion

Question 3

Advantages of sole proprietorship

Answer 3

-Ease of Startup, and closure
-Pride of ownership
-retention of all profits
-All profits become the personal earnings of the owner.
-Flexibility of bieng your own boss

Question 4

Disadvantages of sole proprietorship

Answer 4

• Unlimited liability - Legal concept that holds a bus owner personally responsible for all the debts of the bus.
• Lack of Continuity - if Owner retires, dies, or is declared legally incompetent, the bus ceases to exist
• Limited management skills - SP’s must have expertise in a number of diff areas. (sales, buying, accounting, etc)
• Difficult to hire employees.

Question 5

-two or more persons to act as co-owners of a bus for a profit
-Much less common than SPs representing about 10 percent of all American bus.
-No max on the number of partners a partnership can have

Answer 5

Partnerships

Question 6

A person who assumes full or shared responsibility for operating a business

Answer 6

General Partner

Question 7

A person who invests money in a bus but has no management responsibility or liability for losses beyond the amount he/she invested in the partnership.

Answer 7

limited partner

Question 8

An agreement listing and explaining the terms of the partnership

Answer 8

Articles of partnership

Question 9

Partnership agreement should state the following:

Answer 9

Who will make the final decisions
What each partners’ duties will be
The investment each partner will make
how much perofit or loss each partner receives or is responsible for
What happens if a partner wants to dissolve the partnership or dies

Question 10

Advantages of Partnerships

Answer 10

-Ease of startup
-Availability of capital and credit - partnerships usually have more capital available than SP’s
Personal interest
-Combined bus skills and knowledge
-All profits belong to the owners of the partnership
-No special taxes

Question 11

Disadvantage of partnerships

Answer 11

-Unlimited liability
-General partners are legally and personally responsible for debts, taxes, and actions of any other partner conducting partnership bus, even if that partner did not incur those debts or do anything wrong they are all responsible.
-Limited partners only risk their original investment.
-Many States allow partners to form limited liability partnerships (LLP) which a partner may have limited liability protection from legal action resulting from the malpractice or negligence of other partners.
-Lack of continuity - partnerships are terminated if anyone of the general partners dies, withdraws, or is declared legally incompetent; however, the remaining partners can purchase that partnership’s ownership share.

Question 12

-An artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a bus, to buy or sell property, to borrow money, to sue or to be sued, and to enter into binding contracts
-Unlike a real person, it can only exist on paper
-this form of ownership compromise about 18 percent of all businesses, but they account for 82 percent of sales revenue.

Answer 12

Corporations

Question 13

The shares of ownership of a corporation

Answer 13

stock

Question 14

person who owns a corps’ stock

Answer 14

stockholder

Question 15

A corporation whose stock is owned by relatively few people and is not to be sold to the general public.

Answer 15

closed corporation

Question 16

Corp whose stock can be purchased and sold by the general public

Answer 16

open corporation

Question 17

Where to incorporate

Answer 17

A bus is allowed to incorporate in any state that it chooses.
- Most small & med sized bus are incorporated in the state where they do the most business
-The decision on where to incorporate is usually based on 2 factors:
1. Cost of incorporating in one state compared to the cost in another.
2. Advantages & disadvantages of each state’s corporate laws and tax structure

Question 18

A corp in the state in which it is incorporated
(Sears incorporated in Delaware is the domestic corporation, but is a foreign corp in the remaining 49 states

Answer 18

Domestic corporation

Question 19

corp in any state in which it does bus except the one in which it is incorporated

Answer 19

Foreign Corporation

Question 20

A corporation charted by a foreign government and conducting bus in the US.

Answer 20

Alien Corp

Question 21

A contract between a corp, and the state in which the state recognizes the formation of the artificial person that is the corporation (referred to as Corporate charter)

Answer 21

Articles of Incorporation

Question 22

-A firms name, and address.
-Incorporators’ names and addresses
-purpose of the corporation
-The maximum amt of stock and types of stock to be issued
-Rights and privileges o stockholders
-length of time the corporation is to exist

Answer 22

Articles of incorporation include the following info

Question 23

2 basic types of stocks

Answer 23

Common Stock - Stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others

Preferred Stock - Stock owned by individuals or firms who usually do not have voting rights but whose claims and dividends are paid before those of common-stock owners

Question 24

Dividend

Answer 24

A distribution of earnings to the stockholders of a corporation

Question 25

Stockholders rights

Answer 25

-The most important right of owners of both common and preferred stock is to share in the profit earned by the corporation through the payment of dividends.
-Other rights: receiving info about the corporation
-voting on changes to the corporate charter
-Attending the corps annual stockholders meeting.

Question 26

Proxy

Answer 26

Legal form listing issues to be decided at a stockholders’ meeting and enabling stockholders to transfer their voting rights to some other individual(s).

Question 27

Organizational meeting

Answer 27

As the last step in forming a corp, the incorporators & original stockholders meet to adopt corp bylaws and elect a board of directors.
-Board members are directly responsible to the stockholders for the way they operate the firm.

Question 28

Corp Structure

Answer 28

both boards of directors & corp officers are involved in management.
-Board of directors - Top governing body of a corp, the members of which are elected by the stockholders
-They set company goals, develop general plans/strategies for meeting those goals, and appoint corp officers.
Corp Officers - Chairman of the board, president, executive vice presidents, corp secretary, treasurer, and any other top executive appointed by the board of directors
-They help the board to make plans, carry out strategies established by the board, hire employees, and manage day-to-day business activities

Question 29

Advantages of Corps

Answer 29

Limited Liability - Feature of corp ownership that limits each owner’s financial liability to the amt of money that he or she has paid for the corporations stock
-Ease of raising capital - Not only can corps borrow money, but also raise additional sums of money by selling stock
-Ease of transfer of ownership
-Perpetual life - Since it is essentially a legal “person”, a corp exists independently of its owners and survives them.
-Specialized management - Typically, corps are able to recruit more skilled, knowledgable, and talented managers than proprietorship and partnerships.

Question 30

Disadvantages of corporations

Answer 30

-Difficulty and expense of formation
-Govt. regulation and increased paperwork - A Corp must register and meet various govt. standards before it can sell its stock to the public.
-Conflict within the corp
-Double taxation
-Corporate profits are taxed twice - once as corporate income and a second time as personal income I stockholders.
-Lack of secrecy - because open corps are required to submit detailed reports to govt. –agencies and stockholders, competitors can use this info to compete more effectively

Question 31

S Corps

Answer 31

-S Corp- Corp that is taxed as though it were a partnership - corps income is taxed only as the personal income of tax holders
-S Corp Criteria:
-No more than 100 stockholders are allowed
-Stockholders must be individuals, estates, or certain trusts.
-The Corp has no nonresident, alien shareholders
-There can only be one class of outstanding stock
The firm must be a domestic corp. eligible to file for s corp status.
-Becoming an S corp can be an effective way to avoid double taxation while retaining the corps’ legal benefit of limited liability.

Question 32

Limited Liability Companies

Answer 32

-LLC - A form of bus ownership that combines the benefits of a corp and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership.
-Advantages:
-Avoids double tax
-retains the corps legal benefit of limited liability
-Provides more management flexibility and fewer restrictions than corps.
-The difference between an S corp and an LLC is that an LLC is not restricted to 100 stockholders.

Question 33

Not-for-profit Corporations

Answer 33

NFPC - a corp organized to provide social, educational, religious, or other services rather than to earn a profit.
Various charities, museums, private schools, colleges, and charitable organizations are NFPC. Primarily to ensure limited liability.

Question 34

Joint Venture

Answer 34

• An agreement between two or more groups to form a bus entity to achieve a specific goal or to operate for a specific period.
  -once the goal is reached, the period of time elapses, or the project is completed the joint venture is dissolved.

Question 35

-Temporary association of individuals or firms organizes to perform a specific task that requires a large amt of capital
-Like a joint venture, a syndicate is dissolved as soon as its purpose has been accomplished.

Answer 35

Syndicates

Question 36

growth from within

Answer 36

-Most corps grow by expanding their present operations
-Some introduce and sell new but related prod.
-Others expand the sale of present products to new geographic markets or to new groups of consumers in geographic markets already served

Question 37

Growth through mergers and acquisitions

Answer 37

merger - Combining two corps or other bus entities to form one business
An acquisition is essentially the same thing as a merger, but the term generally is used in reference to large corp purchases of other corporations.
To pay for an acquisition, a leveraged buyout may be used.
- Leveraged buyout - a financing method that uses borrowed money to pay for the company that is being taken over
Hostile Takeover - A situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger

Question 38

Growth through mergers and acquisitions

Answer 38

Classification fo mergers:
Horizontal merger - a merger between firms that make and sell similar prod or services in similar markers
Vertical Merger - Merger between firms that operate at diff but related levels in the prod and marketing of a product.
Congomerate merger - merger between firms in completely diff industires