chapter 5- Forms of ownership Flashcards
define sole propietrorship
business owned by one person
define partnerships
- company owned by two or more people but it is not a corporation
2 types of partnerships
- general: all can make decisions
- limited: one or more persons act as general partners and remain as limited partners.
advantages & disadvantages of sole propietrorship
adv:
- simplicity: easy to establish
- single layer of taxation
- make own decisions
- fewer limitations on personal income
- personal satisfaction
dvt:
- financial liability: legal damage are covered by single owner
- demands on owner
- limted managerial perspective
- resource limitations
- finite life supply
advantages & disadvantages of partnerships
adv:
- simplicity
- single layer taxation
- more resources
- cost sharing
- more experiences
- longevity
dvt:
-unlimited liability
- conflict
describe the partnership agreement
includes:
1. type of partnership
2. investment percentages
3. profit sharing percentages
4. management responsibilities
describe corporations
- legal entity that has the power to own property and conduct buisness
advantages and disadvantages of corporations
adv:
- raise capital
- liquidity
. longevity
- limited liability
dsv:
- cost and complexity
- reporting requirements
- loss of control
- double taxation
types of corporations
- S corporation: capital raising options + limited liability with federal taxation advantages of partnerships
- LLC (limited liability company): number of shareholders is not restricted or members participation in management.
- benefit corporation: profit-seeking corporation with a socil or enviormental goal.
define corporate governance
- policies, procedures and relationship’s in place to have a succesful legal operation in enterprise
- RESPONSABILITIES OF BOARD OF DIRECTORS
define board of directors
- grouo of professionals chosen by shareholders to represent company.
define proxy
- document authorizing another person to vote in behalf of a shareholder in a corporation.
define shareholder activism
- activities that influence decision making in areas like strategy planning and social responsibility.
define corporate officers
- top excutives running company
define chief executive officer (CEO)
highest level in company
merger definition
two companies combining to create a single company
acquisition definition
one company buys a controlling interest in voting stock of another company
define hostile takeover
acquisition of another company against wishes of management
define leveraged buyout (LBO)
acquisition of company´s public trades stocks using borrowed funds, intending to use assets to pay back loans used to acquire company.
advantages & disadvantages of mergers
- adv
- increase buying power
- increase revenue
- gain access to new expertise
dvt:
- need to decide who will be in charge when they join forces.
- deal with layoffs
- might need to rebuilt some software
- organizational culture should bne harmonized
types of mergers
- vertical: different stages but in same industry
eg: lumber suppliers+furniture maker - horizontal: different companies at the same level
eg lumber supplier+ leather supplier - conglomerate merger: companies in unrelated industries
fast food+ shoes
define spin offs
company deciding to divide parts of company in seperate companies.
why do companies apply spin-offs
- increasing shareholder value
- giving parts of a company more freedom to pursue startegic goals
- reinforcing firms straetegy
define startegic alliance
- long-term partnership between companies so they together devleop and sell products
