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Understanding Business College of Western Idaho > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

What are the major forms of business ownership? Describe them.

A
  1. Sole Proprietorship - a business that is owned and usually managed by one person.
  2. Partnership - When two or more people legally own a business
  3. Corporation - A legal entity to act and have liability apart from its owners.
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2
Q

What percentage of businesses are corporations and what percentage of U.S. receipts do they earn?

A

20% are corporations and they earn 81% of receipts

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3
Q

What is unlimited liability

A

The risk owners take for being responsible for all debt incurred by the business.

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4
Q

What are the 6 benefits to owning to sole proprietorship?

A
  1. Ease of starting or stopping the business
  2. Be your own boss
  3. Pride in ownership
  4. Leaving a legacy
  5. Retain all profits
  6. No special taxes
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5
Q

What are the 7 disadvantages of sole proprietorship?

A
  1. Unlimited liability
  2. Limited financial resources
  3. management difficulties
  4. Overwhelming time commitment
  5. Limited fringe benefits
  6. Limited growth
  7. Limited life span of the business
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6
Q

What is a general partnership

A

A partnership where all owners share in operating and assuming liability.

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7
Q

What is a limited partnership

A

One that has one or more general partners and one or more limited partners.

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8
Q

What is a general partner?

A

One that shares in unlimited liability and helps manage the firm.

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9
Q

What is a limited partner?

A

A partner that invest in the firm but does not help manage the business or assume any of the liability beyond their own investment.

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10
Q

What is limited liability

A

The responsibility of a business’s owners for losses only up to the amount they invest; limited partners and shareholders have limited liability.

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11
Q

What is a Master Limited Partnership (MLP)

A

Looks and acts like a corporation but is taxed like a partnership.

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12
Q

What is a Limited Liability Partnership (LLP)

A

A partnership that limits partners’ risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision.

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13
Q

What are the four advantages of a partnership

A
  1. Increased financial resources
  2. Shared management and pooling complimentary skills
  3. Longer survival. Partners watch each others back and hold them accountable.
  4. No special taxes
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14
Q

List four disadvantages of partnerships

A
  1. Unlimited Liability
  2. Division of profits
  3. Disagreement among partners
  4. Difficult terminations (deciding who gets what)
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15
Q

What is a C corporation?

A

A conventional corporation is state charted a free to act and have liability free of its owners.

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16
Q

What are the 7 advantages of a corporation

A
  1. Limited Liability
  2. ability to raise money
  3. It’s size
  4. perpetual life
  5. Ease of ownership change
  6. Ease of attracting talented employees
  7. Separation of ownership from management
17
Q

What are five disadvantages to a corporation?

A
  1. Initial Cost
  2. Extensive paperwork
  3. Double taxation
  4. Two tax returns
  5. Size (can’t respond quickly)
  6. Difficulty of termination (of the company)
  7. Possible conflict between stockholders and board of directors.
18
Q

What document has to be submitted to the state for an individual to incorporate, and what office of the state does it go to?

A

Articles of incorporation gets submitted to the Secretary of State.

19
Q

What must be done before a corporation can even open a bank account?

A

It needs to get a federal tax ID number by submitting an SS-4

20
Q

What is a S-corporation

A

A unique government creation that looks like a corporation but is taxed like a sole proprietorship and partnership.

21
Q

What is an LLC

A

Is similar to an S corporation, but without the special eligibility requirements.

22
Q

What is a merger?

A

the result of two firms joining to form one company.

23
Q

What is an acquisition?

A

One company’s purchase of the property and obligations of another company.

24
Q

Name and describe the three types of mergers.

A
  1. A vertical merger joins two firms that work at different stages of a related business. Like a sweetener company merging with a soda manufacturer.
  2. A horizontal merger joins Two firms in the same industry that merge to diversify their offerings. mineral water company joint soda company.
  3. A conglomerate merger unites completely unrelated industries in order to diversify buisness operations. Soda and snack food.
25
Q

What is a leveraged buyout?

A

an attempt by employees, management, or group of stock holders to buyout everyone else.

26
Q

What is a franchise agreement

A

When a franchisor sells the right to use the business name and sell product or service to franchises

27
Q

What are 5 advantages of franchising?

A
  1. Management and marketing assistance
  2. Personal ownership
  3. Nationally recognized game
  4. Financial advice and assistance
  5. Lower failure rate.
28
Q

What are six disadvantages of franchising

A
  1. Large start-up cost
  2. Shared profit
  3. Management regulation
  4. Coattail effects
  5. Restrictions on selling
  6. Fraudulent franchisors.

Understanding Business College of Western Idaho (22 decks)

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