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Intro to Business > chapter 6 > Flashcards

chapter 6 Flashcards

1
Q

what is a sole proprietorship?

A

one person owning and operating a business, without forming a corporation

in a sole proprietorship, the business and owner are a single entity

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2
Q

what are the 6 advantages to a sole proprietorship?

A

easy and inexpensive to form

profits are retained by the owner

direct control of the business

freedom from government regulation

taxed once

ease of dissolution

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3
Q

explain how sole proprietorship are easy and inexpensive to form?

A

very few legal requirements when wanting to start a sole proprietorship business

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4
Q

explain how profits are retained by the owner in a sole proprietorship?

A

owner obtains the start-up funds and gets all the profits earned by the business. The more efficiently the firm operates, the higher the company’s profitability

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5
Q

explain how direct control of the business is a sole proprietorship advantage?

A

All business decisions are made by the sole proprietorship owner without having to consult anyone else

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6
Q

explain why a sole proprietorship has freedom from government regulation?

A

(more freedom than other forms
of business with respect to government controls) no governments requirements to open a sole proprietorship just need to be a licensed business

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7
Q

what are the 7disadvantages of a sole proprietorship?

A

unlimited liability
difficulty raising capital
limited managerial expertise
trouble finding qualified employees
personal time commitment unstable business life (limited lifespan)
losses are the owners responsibility
limited growth few fringe benefits

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8
Q

explain how unlimited liability is a disadvantage of a sole proprietorship?

A

Legally, the sole proprietor and the company are one and the same, making the business owner personally responsible for all debts the company incurs. can lose personal assets if needed

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9
Q

why is difficulty raising capital a disadvantage of a sole proprietorship?

A

Business assets are unprotected against claims of personal creditors, so business lenders view sole proprietorships as high risk due to the owner’s unlimited liability.

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10
Q

why is limited managerial expertise a disadvantage of a sole proprietorship?

A

The success of a sole proprietorship rests solely with the skills
and talents of the owner

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11
Q

why is trouble finding qualified employees a disadvantage of a sole proprietorship?

A

Sole proprietors often cannot offer the same pay, fringe benefits, and advancement as larger companies, making them less attractive to employees seeking the most favourable employment opportunities

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12
Q

why is the personal time commitment a disadvantage of a sole proprietorship?

A

Running a sole proprietorship business requires personal sacrifices and a huge time commitment (12-hour workdays and 7-day workweeks)

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13
Q

why is a unstable business life a disadvantage of a sole proprietorship?

A

life span of the business is uncertain - owner may lose interest, experience ill health, retire, or die. The business will cease to exist unless the owner makes
provisions for it to continue operating or puts it up for sale

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14
Q

what is liability?

A

liability is another term for debt, for a business it means the responsibility to pay all debts

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15
Q

why is liability important in a sole proprietorship?

A

because you have unlimited liability, any debts or damages incurred by the business are also your debts and YOU must pay them

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16
Q

what are required and important to fill out before forming a partnership?

A

legal forms outlining ALL the details of the partnership

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17
Q

what are the 3 forms of partnerships?

A

general partnership
limited liability partnership
limited partnership

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18
Q

explain what a general partnership is?

A

A partnership in which all owners share in operating the business and in assuming liability for the business’s debts. They co-own the assets, and each can act on behalf of the firm. Each partner also has unlimited liability for all the business obligations of the firm

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19
Q

explain a limited partnership?

A

a partnership with one or more general partners and one or more limited partners

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20
Q

what is a general partner?

A

an owner (partner) who has unlimited liability and is active in managing the firm

all money invested and personal assets are at risk if needed

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21
Q

what is a limited partner?

A

An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment (personal assets are not at risk)

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22
Q

what is a limited liability partnership?

A

Limits all partner’s risks of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision

all other partners are not liable for another partners mistakes

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23
Q

what are the 12 questions to ask when choosing a business partner?

A

do you share the same goals

do you share the same vision for the company future

what skills does the other person have

does the other person have the same skills or do they compliment yours

what contacts, resources, or special attributes will the person bring to the business

what type of decision maker is this person

could I happily share authority with this person

do you trust each other

how does this person respond to adversity

do they try to solve the problem or try to defend their ego

can the person accept constructive criticism without getting defensive

to what extent can they bring fun and excitement into the partnership

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24
Q

what percentage of registered businesses in canada are sole proprietorships?

A

almost 25% of all registered businesses in canada fall under the form of owner ship

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25
Q

what are the 6 advantages of a partnership?

A

more financial resources

shared management and pooled, complementary skills and knowledge

longer survival

shared risk

special taxes

flexibility

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26
Q

explain why ease of formation is an advantage of a partner ship?

A

there is not a lot of registration required, just need partners to agree to do business together and draw up a partnership agreement

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27
Q

explain why availability of capital is an advantage of a partnership?

A

because in a partnership there are two or more people to contribute financial resources

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28
Q

explain why diversity of skills and expertise is an advantage of a partnership?

A

partners share responsibilities of managing and operating the business, increasing the chances of the partnerships success. the success of the business doesn’t solely rely on your skill set

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29
Q

explain why flexibility is an advantage of a partnership?

A

general partners are actively involved in managing their firm and can respond quickly to changes in the business environment

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30
Q

why is having no special taxes an advantage that comes with a partnership?

A

each partners profit or loss is reported on the partners person income tax return, with any share of profits taxed at personal tax rates

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31
Q

explain why an advantage of a partnership is relative freedom from government control?

A

except for provincial rules for licensing and permits, the government has little control over partnership activities

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32
Q

what are the 5 disadvantages of a partnership?

A

unlimited liability
division of profits
disagreements among partners
difficulty of termination
possibility of higher taxes

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33
Q

why is unlimited liability a disadvantage of a partnership?

A

all general partners have unlimited liability

any one partner can be held personally liable for all partnership debts and legal judgments (such as malpractice) regardless of who caused it?

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34
Q

why is complexity of profit sharing a disadvantage of a partnership?

A

dividing profits us relatively easy if all partners contribute time, money, expertise and capital equally. but if one put in partner puts in more time and the other partner puts in more money than it is difficult to arrive at a profit sharing formula and that is a fair profit split

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35
Q

why is disadvantage of a partnership difficulty exiting or dissolving the partnership?

A

as a rule partnerships are easier to form than leave. but it is difficult to dissolve a partnership due to:
calculated share value

who the share is sold to

if the person wanting to leave owns more then 50% the company must reorganize or end

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36
Q

how can you avoid the problems that come with exiting or dissolving a partnership?

A

most partnership agreements include specific guidelines for for transferring partnership interests and buy-sell agreements that make provisions for surviving partners to buy a deceased partners interest

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37
Q

what is a corporation?

A

a legal entity subject to the laws of the Provence in which it is formed, a corporation can own property, enter into contracts, sue and be sued and engage in business operations under the terms of its charter

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38
Q

who issues the right to operate a corporation?

A

provincial government (sometimes federal government)

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39
Q

are corporations taxable entities with a separate life from their owners?

A

yes owners are not personally liable for its debts

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40
Q

what are the 5 types of corporations?

A

private
public
non-profit
professional corporations
crown corporations

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41
Q

what makes corporation private?

A

a corporation not traded on any stock exchange and limited to 50 or fewer stockholders

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42
Q

what makes a corporation public?

A

a corporation that is traded on one or more stock exchanges

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43
Q

what makes a corporation a non-profit?

A

a corporation that performs public service and does not seek personal profit for its owners

has special tax considerations to encourage people to start one

44
Q

what makes a corporation a professional corporations?

A

owners provide professional services (accountants and architects)

45
Q

what makes a corporation a crown corporation?

A

a corporation that can only be started and registered by the provincial or federal government

46
Q

what are the 7 advantages to a corporations?

A

limited liability

more money for investment

size: may be larger due to increased resources

perpetual life

ease of ownership change

ease of attracting talented employees

separation of ownership from management

47
Q

why is limited liability an advantage of a corporation?

A

corporations are a separate legal entity from their owners, the owners liability is limited to the amount of stock they own. if a corporation goes bankrupt creditors can only take assets of the corporation

48
Q

why is ease of transferring ownership an advantage of corporations?

A

stockholders of public corporations can sell their shares at any time without effecting the status of the corporations

49
Q

why is unlimited life an advantage of corporations?

A

life of the corporation is unlimited and does not rely on the owners (the death or withdrawal of an owner does not affect its existence)

50
Q

why are tax deductions an advantage of corporations?

A

corporations are allowed to make cretic tax reductions that reduces their taxable income

51
Q

why is the ability to attract financing an advantage of corporations?

A

corporations can raise money by selling are shares of stock, dividing the stock in to smaller units makes it more affordable and drawing more investors

the large size and stability of a corporation can help them get bank financing

people also have more confidence in and trust corporations which makes them more willing to invest

52
Q

what are the 6 disadvantages of corporations?

A

high initial costs
extensive paperwork
double taxation
two tax returns
termination is difficult
stock holder and board conflict

53
Q

explain why double taxation of profits are a disadvantage of corporations?

A

corporations must pay federal and provincial income taxes on their profits. in additions any profits (dividends) paid to stockholders are taxed as personal income

54
Q

why is cost and complexity of formation a disadvantage of corporations?

A

iforming a corporation involves several steps, and costs can run in to the thousands of dollars

55
Q

what are some costs of forming a corporation?

A

provincial filing
registration costs
license fees
attorney fees
accountant fees

56
Q

why is having more government restrictions a disadvantage of a corporation?

A

unlike sole proprietorships and partnerships, corporations are subject to many regulations and reporting requirements that they must meet

57
Q

what is corporate governance?

A

due to corporate scandals, board members are under increasing scrutiny to ensure that they are effectively fulfilling their roles and responsibilities to their stakeholders and not doing anything to slow funding

58
Q

how are members who serve on boards liable?

A

members who are on boards of both for-profit and non-profit may be held personally liable for the misconduct of the organization

59
Q

what do companies need to follow if they wish to operate in canada?

A

they must follow federal and provincial laws and regulations including all provincial and federal registration and reporting information

60
Q

why would shareholders and board members have conflict in a corporation?

A

since the owners and management (board members) are separate entites and not the same there could be a conflict of how something is done

61
Q

what is an article of incorporation?

A

a legal authorization from the provincial/ territorial government for a company to use company format

62
Q

what are the 5 ways of corporate expansion?

A

a merger
an acquisition
a vertical merger
a horizontal merger
a conglomerate merger

63
Q

what is a merger?

A

the result of two firms forming one company

64
Q

what is an acquisition?

A

one companies purchase of the property and obligations and debt of another company

65
Q

what is a vertical merger?

A

the joining of two firms involved in different stages of related business

66
Q

what is a horizontal merger?

A

the joining of two firms in the same industry and allows them to diversify or expand their products

67
Q

what is a conglomerate merger?

A

a merger that unites firm in completely unrelated industries (crayon selling crayons/marker and merging with a flower company)

68
Q

what are the four reasons why mergers do not work?

A

companies overpay to acquire another firm

acquiring company overestimates cost saving and synergies

after merger, managers disagree about integrating operations

after merger, cost cutting obsession hurts business, costing the top employees and customers

69
Q

why do companies sometimes overpay when acquiring another firm?

A

they do not do their research and the company being acquired inflates overall value of intangible things (projected profits)

70
Q

why does the acquiring company sometimes overestimate cost savings and synergies?

A

they are trying to acquire some skill from another company but it doesn’t work out how they thought

71
Q

why do managers disagree about integrating operations after a merger?

A

because they different managers from the 2 companies have different views on business opportunity

72
Q

what is a leveraged buyout (LBO)

A

a leveraged buyout (LBO) is an attempt by employees, management or a group of investors to purchase an organization primarily through borrowing

73
Q

what is an example of a leveraged buy out?

A

hotel In the Caribbean was bought out by managers, employees and investors borrowed money to buy out the hotel

74
Q

what is a franchise agreement?

A

a contract that allows the franchisee to use the franchisor’s business name, trademark and logo. the agreement also outlines rules for running the franchise, services provided by the franchisor and financial terms

75
Q

whatare the 6 things the franchisee agree to in the franchise agreement?

A

to follow the franchisor’s operating rules

keeping inventory at certain levels,

buying a standard equipment package,

keeping up sales and service levels

taking part in franchisor promotions

maintaining relationship with the franchisor

76
Q

what does a franchisor agree to in a franchise agreement?

A

franchisor provides the use of a proven company name and symbols

provides help in finding a site

provides building plans

provides guidance and training

provides management assistance

provides managerial and accounting systems and procedures

provides employee training

provides whole sale prices for supplies

provides financial assistance

77
Q

what is franchising?

A

franchising is a form of business that involves a franchisor supplying product or service concept and the franchisee selling the goods or services in a certain demographic area

78
Q

what areas of business do franchises market products?

A

a variety of industries (food, retail, hotel, travel, real estate, business services, cleaning services, weight loss centres and wedding services)

79
Q

what are the 5 responsibilities of a franchisor?

A

assign territory

may provide financial aid/advice

offers merchandise or supplies at a competitive price

provides training and support

business expansion

80
Q

who are the two people involved in a franchise?

A

franchisor and franchisee

81
Q

what is a franchisor?

A

the person selling the business or letting the franchisee use the logo and company

82
Q

what is a franchisee?

A

the person using the logo and managing the physical location of that business

83
Q

what are the 4 responsibilities of a franchisee?

A

pay upfront costs

make monthly or annual payments to the franchisor (royalty fee)

runs business by franchisors rules and procedures

buys materials from franchisor or approved supplier

84
Q

what are the 5 advantages to franchises?

A

management and marketing assistance

personal ownership

nationally recognized name

financial advice and assistance

low failure rate

85
Q

what are the 6 disadvantages to franchises?

A

large start up cost

shared profit

management regulations

coattail effect

restrictions on selling

fraudulent franchisors

86
Q

why is increased ability for franchisor to expand an advantage of franchises?

A

because franchisees finance their own units, franchisors can grow with out making a major investment

87
Q

why is a recognized name, product and operating concept an advantage of franchises?

A

consumers know they can trust products from a big company like Pizza Hut. as a result the franchisees risk is reduced and the opportunity for success is increased

88
Q

why is management training and assistance an advantage in franchises?

A

the franchisor provides a structured training program that gives the franchisee a crash course in how to start and operate their business. and ingoing training for managers and employees

89
Q

why is financial assistance an advantage in franchises?

A

being linked to a nationally knows company can help the franchisee obtain funds from a lender

the franchisor typically gives the franchisee advice on financial management, referrals to lenders and help in preparing loan applications

90
Q

how does a franchisor get paid by the franchisee?

A

by a recurring royalty fee

91
Q

why is loss of control a disadvantage of a franchise?

A

the franchisor has to give up some control over operations and has less control which could lead to a drop in overall quality

92
Q

why is cost of franchising a disadvantage of a franchise?

A

franchising can be very costly, costs will vary depending on the type of business and may include expensive facilities and equipment.

the franchisee also has to pay fees and royalty to the franchisor (normally tied to a certain percent of sales)

93
Q

why is restricted operating freedom a disadvantage of a franchise?

A

the franchisee has to conform to the franchisors operating rules and facilities design as well as inventory and supply standards

some franchises require franchisees to purchase from only the franchisor or approved supplier

failure to conform to the franchisor policies could mean loss of the franchise

94
Q

what are the 4 ways to avoid disaster in a franchise?

A

research officers and their business experience

get all summary of any bankruptcy and litigation

estimate ALL costs to set up a franchise

review franchise contract and three most recent financial statments

95
Q

what is a co-operative?

A

a co-operative is a legal entity with corporate features like limited liability, unlimited lifespan, elected board of directors and administrative staff

they are organized solely to meet the needs of the memebr-owners and not to make a profit for the investors

member-owners pay annual fees to the co-operative and share in the profits

96
Q

how are profits distributed to members in co-operitives?

A

they are distributed in proportion to their contributions

97
Q

why are co-operatives created?

A

cooperatives are organized by members solely to meet the needs of the member- owners, not to accumulate capital for investors

most cooperatives are democratic and practice “one member, one vote” providing equal control over the cooperative

98
Q

what is unlimited liability?

A

company is in debt and cannot pay it than the creditors can take personal assets of the owner or the general partner

99
Q

what are the 7 types of co-operatives in Canada?

A

consumer co-operative
producer co-operative
multistakeholder co-operative
worker co-operative
worker- shareholder co-operative
federation
mutual

100
Q

what is a consumer co-operative?

A

they provide their members with goods and services for personal use

examples: grocery stores, credit unions

101
Q

what is a producer co-operative?

A

some producer co-operatives process and market their member’s goods and services directly, while others may also sell the products

102
Q

what is a multistakeholder cooperative?

A

co-operitaves made of different categories of members who share a common interest in the organization

103
Q

what is a worker co-operitave?

A

the purpose of these co-operitaves is to provide employment for their members through operating an enterprise

EX: forestry, fair trade

104
Q

what is a worker- shareholder co-operative?

A

a co-operative that holds partial ownership of the business in which its members are employed

because of its share capital, the co-operative may participate in the management of the business

105
Q

what is a federation?

A

a federation is a co-operative of co-operatives in which the members are co-operatives themselves

106
Q

what is a mutual?

A

a mutual is an organization created by and for its members to offer mutual aid or mutual protection

EX: insurance, loans

Intro to Business (25 decks)

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