Ch3 Flashcards
Sole proprietorship
A business owned and run by one person
Most numerous type but small in size
Advantages of sole proprietorship
Easy to start
Easy to manage
Owner makes and takes profits, no need to share
Business pays no income tax
Psychological satisfaction- being your own boss
Easy to get out of business
Disadvantages of sole proprietorship
Unlimited liability- owner is responsible for all losses and debts
Difficult to raise financial capital
Difficult to maintain and fund employees and inventory
Difficult to attract qualified employees
Limited life- business stops when owner quits sells etc
Partnerships
Businesses owned by two or more people
General partnership
All parties are responsible for the business
Limited partnership
At least one partner is silent
Articles of partnership
Formal legal papers to define division of profits and losses
Advantages of partnerships
Easy to start
Easy to manage
Limited taxes- individual income tax but no business tax
Easier to get bank loan
Bigger size equals more efficient operations
Easier to find qualified employees
Disadvantages of partnerships
All partners are fully responsible for each other
Potential for conflict
Limited life if partner quits dissolving partnership
Bankruptcy
Court granted permission to individual or business to stop or delay debt payments
Corporations
Business organization recognized by law as a separate legal entity having all their rights of an individual
Forming a corporation
File for permission from state where the business will be HQ’d
Charter- charter specifies number of shares of stock or ownership certificate in the firm
Charter
Govt document granting permission in incorporate
Dividend
A check representing a portion of corporate earnings go to es h shareholder
Common stock
Basic ownership of a company
Receive a vote for each share
Preferred stock
Nonvoting ownership shares of corporation
First to receive dividend and investment back
Securities and exchange commission (SEC)
Federal body that regulates stocks and financial exchange
Advantages of stock
Easy to raise money
Ability to hire professional managers to run firm
Unlimited life
Easy to transfer ownership
Principal
Amount borrowed
Interest
Higher rate with long term bonds (more risk)
Disadvantages of stock
Difficult to get charter
Shareholders have little say
Separation of ownership
More govt regulation
Income statement
Report showing sales expenses and profit for period of time
Net income
Revenue minus expenses
Depreciation
Gradual wear on capital goods during production
Cash flow
Some of net income and non cash charges
Merger
Combination of two or more businesses to form a single firm
Reasons for merging
Grow firm faster
Higher efficiency
Eliminate a rival
Lose an old bad identity
Horizontal merger
Two or more firms that produce the same kind of product (two banks)
Vertical merger
Firms from different manufacturers ( auto maker and tire company)
Conglomerates
Firm that has at least 4 businesses each making unrelated products
Diversification
Produce different goods to protect overall sales
Multinationals
Corporation with manufacturing in more than one country
Pay taxes in each country
Can be conglomerates but called multinationals
Advantages of multinationals
Bring new products to an area
Low cost of production
Disadvantages of multinationals
Pay low wages
Slows development of local businesses
Nonprofit organization
Operates a business like way to promote the collective interests of its members
No financial gains for owners
No stock
Cooperative coop
Voluntary association of people formed in a group to benefit its members
Consumer coop
Buys bulk amounts of goods on behalf of its members, keeps low costs
Service coop
Members can borrow at better rates and faster than Normal
Credit unions
Producer coop
Helps members sell their products
Outlet malls
Labor unions
Workers formed to represent its members interests in employment matters
Collective bargaining
Union negotiations with management
Professional associations
Group is specialized occupation that works to improve the working conditions
Chamber of commerce
Promotes the welfare of its members and the community
Better business bureau
Nonprofit organization sponsored by local businesses to provide general info on companies
Direct role of govt
Govt supplies goods directly to the people
- Postal service
- federal deposit insurance corporation
Indirect role of govt
Public utilities: companies that offer important products to the public
- water and electrical service
