chapter 6 Flashcards
what is sole proprietorship ?
One person owning and operating the business without forming a corporation
The business and owner are single entity ( company that operates independently )
Almost ¼ of all register businesses in Canada fall under this form of ownership
what is liability ?
Another word for debt ( has a wider and important meaning )
Responsibility to pay all normal debts
what is unlimited liability
When you work for others it their problem if the business is not profitable
When you own your own business, you and the business are considered one ( you have unlimited liability : any debts or damages incurred by the business are you debts and you must pay them )
Sole proprietorship = unlimited liability
what is a partnership ? What are the two kinds and describe them ?
General partnership : An owner (partner) who has unlimited liability and is active in managing the firm
All owners share in operating the business and in assuming liability for the business dept.
Limited Partnership : An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment
A partnership with one or more general partners and one or more limited partners
what is a corporation ?
A federally or provincially chartered legal entity with authority to act and have liability separate from its owners ( stockholders/shareholders )
Although the word corporation makes people think of big businesses, it is not necessary to be big to incorporate ( ie. start a corporation )
Corporations are big however incorporating may also be beneficial for small business
Companies that wish to operate in Canada must follow federal and provincial business laws and regulations ( Among other things, this applies to registration and to reporting information )
what are articles of incorporation ?
A legal authorization from the federal and provincial/territorial government for a company to use the corporate format.
what are the two main types of corporations ?
1) Private : not traded on any stock exchange ( limited to 50 or fewer stockholders )
2) Public : shares are traded on one or more stock exchanges
what is corporate governance ?
he process and policies that determine how an organization interacts with its stakeholders, both internal and external.
Corporate governance is necessary because of the evolution of public ownership
As a result of corporate scandals, board members are under increasing scrutiny to ensure that they are effectively fulfilling their roles and responsibilities to their stakeholders
Be aware that those who serve on boards ( both profit and nonprofit ) may be held personally liable for the misconduct of the organization
what are 3 other types of corporations ?
1) Professional Corporations : Owners provide professional services ( accountant, architects etc. )
2) Crown Corporations : One that can only be registered by the provincial or federal government
3) Non-profit : Performs public service, has special tax considerations to encourage formation. ( does not seek personal profit for its owners ) ( uni, hospitals, charities etc. )
what is a corporate expansion ?
A merger is the result of two firms forming one company
what are the 3 types of mergers ?
1) A vertical merger : The joining of two firms involved in different stages of related business ( ie. a manufacturer of cars and engines )
2) A horizontal merger : joins two firms in the same industry and allows them to diversify or expand their products ( ie. a manufacturer of cars and Trucks )
3) A conglomerate merger : Unites firms in completely unrelated industries
( ie. a manufacturer of cars and a finance company )
what Is a acquisition ?
one company’s purchase of the property and obligations of another company ( sometimes a hostile takeover )
why do mergers fail ?
- Companies overpay to acquire another firm
- Acquiring company overestimates cost savings and synergies ( two companies coming together )
- After merger, managers disagree about integrating operations
- After merger, cost cutting obsession hurts business, costing top employees and customers
what is a leveraged buyout and what is its abbreviation ?
LBO
An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing.
The funds borrowed are used to buy out the stockholders in the company
what is a franchise ?
Some people are not comfortable starting their own business from scratch (they’d rather join a business with a proven track record through a franchise agreement )
what is a franchise agreement ?
an arrangement whereby someone with a good idea for a business ( the franchisor ) … sells the rights to use the business name and to sell a good or service in a given territory ( the franchise ) to others ( the franchisee )
what is a franchisor ?
Assigns territory
May provide financial aid/advice
Offers merchandise/supplies at competitive price
Provides training/support
Business expansion through other entrepreneurs
what is a franchisee ?
Pays upfront costs
Makes monthly payment to franchisor ( royalty based on sales )
Runs business by franchisor’s rules/procedures 1
Buys materials from franchisor/approved supplier
how to avoid franchise disaster ?
1) Research officers and their business experience
2) Get summary of any bankruptcy and litigation
3) Estimate all costs to set up franchise
4) Review Franchise contract and three most recent financial statements
what is COOPS
Owned by the members
Pay no income taxes
Profits are shared amongst the members ( coworkers, farmer, fishermen, consumers etc band together to form “co-ops”
what are agricultural co-ops ?
- Owned by the farmer members
- Combined resources to sell their products ( also purchasing power )
