Chapter 3 Flashcards

1
Q

Sole Proprietorship

A

a business owned and run by one person

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2
Q

Forming a Proprietorship

A

no requirements except for occasional business, licenses, and fees

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3
Q

Advantages of a Proprietorship (6)

A
  • ease of starting up
  • ease of management
  • owner enjoys the profits without having to share them with other owners
  • doesn’t have to pay separate business income taxes
  • psychological satisfaction
  • ease of getting out of business
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4
Q

Disadvantages of a Proprietorship (6)

A
  • unlimited liability
  • difficult to raise financial capital
  • small size and efficiency
  • limited managerial experience
  • difficult to attract qualified employees
  • limited life
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5
Q

unlimited liability

A

the owner is personally and fully responsible for all loses and debts of the business

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6
Q

inventory

A

a stock of finished goods and parts in reserve

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7
Q

limited life

A

the firm legally ceases to exist when the owner dies, quits, or sells the business

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8
Q

General Partnership

A

all partners are responsible for the management and financial obligations of the business

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9
Q

Limited Partnership

A

at least one partner isn’t active in the daily running of the business

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10
Q

Advantages of a Partnership (6)

A
  • ease of establishment
  • ease of management
  • lack of special taxes on a partnership
  • attract financial capital more easily than proprietorships
  • larger than proprietorships
  • attract top talent into their organizations
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11
Q

Disadvantages of a Partnership (4)

A
  • each partner is fully responsible for the acts of all other partners
  • potential for conflict between partners
  • limited partnership
  • bankrupcy
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12
Q

limited partnership

A

investor’s responsibility for the debts of the business is limited by the size of his or her investment in the firm

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13
Q

bankruptcy

A

a court granted permission to an individual or business to cease or delay debt payments

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14
Q

Corporation

A

a form of business organization recognized by law as a separate legal entity having all the rights of an individual

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15
Q

charter

A

a government document that gives permission to create a corporation

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16
Q

stock

A

ownership certificates in the firm

17
Q

dividend

A

a check representing a portion of the corporate earnings

18
Q

common stock

A

basic ownership of a corporation

19
Q

preferred stock

A

nonvoting ownership shares of the corporation

20
Q

Advantages of a Corporation (5)

A
  • ease of raising financial capital
  • directors of the corporation can hire professional managers to run the firm
  • limited liability for owners
  • unlimited life
  • ease of transferring ownership
21
Q

bond

A

written promise to repay the amount borrowed at a later date

22
Q

prinicipal

A

amount borrowed

23
Q

interest

A

price paid for the use of another’s money

24
Q

Disadvantages of a Corporation (4)

A
  • difficult to get a charter
  • the owners/shareholders have little say in how the business is run after they have voted for the board of directors
  • double taxation
  • subject to more government regulation
25
double taxation
stockholders' dividends are taxed twice - once as a corporate profit and again as personal income
26
a merger
a combo of 2+ businesses to form a single firm
27
Income Statement
a report showing a business' sales, expenses, and profits for a certain period
28
net income
difference of all expenses, including taxes, from its revenues
29
depreciation
a non cash charge the firm takes for the general wear and tear on its capital goods
30
cash flow
total amount of new funds the business generates from operations
31
Reasons for Merging (5)
- businesses aren't growing at the rate they want with the internal funds - efficiency - need to acquire new product lines - catch up or eliminate rivals - lose corporate identity
32
horizontal merger
2+ firms produce the same kind of product join forces
33
vertical merger
firms involved in different steps of manufacturing join together
34
a conglomerate
a firm that has at least 4 businesses, each making unrelated products, none of which is responsible for a majority of its sales
35
a multinational
a corporation that has manufacturing or service operations in a number of different countries