Chapter 3- Section 1 Flashcards
What is a sole proprietorship?
Business owned and run by one person
What are the three main forms of businesses organizations in the economy today?
Sole proprietorship, the partnership, and the corporation
How easy is a sole proprietorship to form?
Easy because it involves almost no requirements except for occasional business licenses and fees
What are the advantages of sole proprietorships?
Ease of starting up, relative ease of management, owner enjoys the profits of successful management without having to share them with other owners, does not have to pay separate business income taxes because the business is not recognized as a separate legal entity, psychological satisfaction, the ease of getting out of business
What are the disadvantages of a sole proprietorship?
Unlimited liability, difficulty in raising financial capital, size and efficiency, has limited managerial experience, difficulty of attracting qualified employees, limited life
The owner is personally and fully responsible for all losses and debts of the business
Unlimited liability
A stock of finished goods and parts in reserve
Inventory
Firm legally ceases to exist when the owner dies, quits, or sells the business
Limited life
A business jointly owned by two or more persons
Partnership
One in which all partners are responsible for the management and financial obligations of the business
General partnership
At least one partner is not active in the daily running of the business, although he or she may have contributed funds to finance operation
Limited partnership
Because more than one owner is involved what is usually drawn up to specify arrangements between partners?
Eagle papers called articles of partnership
What are the advantages of partnerships?
Easy to establish, easy to manage, lack of special taxes on it, usually attract financial capital more easily than proprietorships, slightly larger size which often makes for more efficient operations, easier to attract top talent into their organizations
What are the disadvantages of general partnerships?
Each partner is fully responsible for the acts of all other partners
What’s is the disadvantage of a limited partnership?
Limited partners have limited liability which means that the investors responsibility for the debts of the business is limited by the size of his or her investment in the firm
What are the disadvantages of a partnership?
Limited life, potential conflict between partners, things not always working out as planned
A court granted permission to an individual or business to cease or delayed debt payments
Bankruptcy
A form of business organization recognized by law as a separate legal entity having all the rights of an individual
Corporation
A government document that gives permission to create a Corporation
Charter
To form a corporation you must what?
File for permission from the national government or the state where the business will have its headquarters
Ownership certificates in the firm
Stock
Shares that are sold to investors
Stockholders or shareholders
A check representing a portion of the corporate earnings to each stockholder
Dividend
Basic ownership of a corporation, Receives one vote for each share of stock
Common stock
Nonvoting ownership shares of the corporation, receive dividends before common stockholders receive bears, get their investment back before common stockholders, do not have the right to elect members to the board of directors
Preferred stock
A ballot that gives stockholder’s representative the right to vote on corporate matters
Proxy
What are the advantages of a corporation?
Ease of raising financial capital, directors of the corporation can hire professional managers to run the firm, provides limited liability for its owners, unlimited life, easy transferring ownership
A written promise to repay the amounts borrowed at a later date
Bond
Amount borrowed
Principal
The price paid for the use of another’s money
Interest
What are the disadvantages of a corporation?
The corporate structure and the difficulty and expense of getting a charter, the owners or shareholders have little saying how the business is run after they have voted for the Board of Directors, double taxation of corporate profits, subject to more government regulations and other forms of business
Stockholders dividends are taxed twice once as corporate profit and again as personal income
Double taxation
