Chapter 6 Flashcards
What are the three major forms of business ownership?
- Sole Proprietorship
- Partnerships
- Corporations
What are liabilities?
The responsibilities of a business to pay all normal debts and to pay fees because of a court order, performance and damages
What are the advantages and disadvantages of Sole Proprietorship?
Advantages:
- Ease of starting and ending the business
- Being your own boss
- Pride of ownership
- Retention of company profit
- No special taxes
- Less regulation
Disadvantages
- Unlimited liability
- Limited financial resources
- Management difficulties
- Overwhelming time commitment
- Limited growth
- Limited lifespan
What are the two types of partnerships?
- General Partnership - all owners share in operating the business and in assuming liability for the business’s debts
- Limited Partnership - one or more general partners and one or more limited partners (limited partner(s) invest money but don’t have management responsibilities
What is limited liability?
Limited partners are not responsible for the debts of the business beyond the amount they invest (personal assets are not a risk)
What is a Limited Liability Partnership (LLP)?
Limits partners’ risk of losing their personal assets to the outcome of only their own acts and omissions and those of people under their supervision
What are the advantages and disadvantages of partnerships?
Advantages:
- More financial resources
- Pooled skills and knowledge
- Shared risk
- Longer survival
- No special taxes
- Less regulation
Disadvantages
- Unlimited liability
- Division of profits
- Disagreement among partners
- Difficulty of termination
- Possibly pay higher taxes
What is a partnership agreement?
Legal documents that specify the rights and responsibilities of each partner
What are the two kinds of corporations?
- Public Corporations - Have the right to issue stock to the public, shares may be listen on a stock exchange
- Private Corporation - Is not allowed to issue stock to the public; limited to 50 or fewer shareholders
What are the advantages and disadvantages to corporations?
Advantages:
- Limited liability
- Ability to raise money for investment
- Size
- Perpetual life
- Ease of ownership change
- Ease of attracting talented employees
- Separation of ownership from management
Disadvantages
- Initial cost
- Extensive paperwork
- Double taxation
- Two tax returns
- Size
- Difficulty of termination
- Possibility of conflict with shareholder and board of directors
What is corporate governance?
Refers to the process and policies that determine how an organization interacts with its stakeholders - both internal and external
What are articles of incorporation?
Legal authorization from the federal or provincial government for a company to use the corporate format
What is a merger?
The result of two firms forming a single company
What is an acquisition?
One company’s purchase of the property and obligations of another company
What is a vertical merger?
The joining of two firms involved in different stages of related business (ex: a soft drink company and an artificial sweetener)
