CHAPTER 6- Forms of Business Ownership

Question 1

what is a sole Proprietorship?

Answer 1

One person owning & operating a business, without forming a corporation.

Question 2

what are some advantages of sole Proprietorship?

Answer 2

be your own boss, Pride of ownership, Retain profit, No special taxes, Less regulation, easy to start and end

Question 3

what are some disadvantages of sole Proprietorship?

Answer 3

Unlimited liability, Limited financial resources, Management difficulties, Overwhelming time commitment, Few fringe benefits, Limited growth, Limited lifespan, Possibly pay higher taxes

Question 4

what is liability?

Answer 4

responsibility for the business to pay all normal debts.

Question 5

what is Unlimited Liability?

Answer 5

When you own your own business (sole proprietorship), you & the business are considered one. any damages that happen you must pay them

Question 6

what is general partnership?

Answer 6

owners share in operating the business & in assuming liability the business’s debts. (unlimited liability)

Question 7

what is a general partner?

Answer 7

owner (partner) who has unlimited liability & is active in managing the firm.

Question 8

what is Limited Partnership?

Answer 8

when two or more partners go into a business together, but the limited partners are only liable up to the amount of their investment (limited liability)

Question 9

what is a limited partner?

Answer 9

owner who invests money in business but does not have any management responsibility or liability for losses beyond the investment.

Question 10

what are advantages of partnership?

Answer 10

More financial resources, Shared management and pooled, complementary skills and knowledge, Longer survival, Shared risk, No special taxes

Question 11

what are disadvantages of partnership?

Answer 11

Unlimited liability, Division of profits, Disagreements among partners, Difficulty of termination, Possibility of higher taxes

Question 12

how can a corporation raise money?

Answer 12

a corporation can sell ownership (stock) to anyone who is interested, thus can have more money for investment.

Question 13

what are advantages of a corporation?

Answer 13

Limited liability, More money for investment, Size: may be larger due to increased resources, Perpetual life

Question 14

what are disadvantages of a corporation?

Answer 14

High initial cost, Extensive paperwork, Double taxation, Two tax returns

Question 15

what is a private corporation?

Answer 15

not traded on any stock exchange

Question 16

what is a public corporation?

Answer 16

shares are traded on one or more stock exchanges

Question 17

what is a professional corporation?

Answer 17

owned and operated by one or more members of the same profession. only members of certain professions such as lawyers, accountants, physicians, dentists can operate a professional corporation

Question 18

what is a crown corporation?

Answer 18

one that can only be registered by the provincial or federal government

Question 19

how do owners affect management? (hierarchy)

Answer 19

there are owners and shareholders at the top, next is the board of directors who hire officers, next are the officers who set corporate objects and select managers. next are the managers who watch over employees and last are employees

Question 20

what is Canada’s largest corporation?

Answer 20

wal-mart canada

Question 21

what is corporate governance?

Answer 21

the structure and method by which a company manages its decision making process

Question 22

what is public ownership?

Answer 22

when the government owns goods and services

Question 23

those who serve on boards may be help liable for what?

Answer 23

company’s misconduct

Question 24

what is articles of incorporation?

Answer 24

A legal authorization from the federal or provincial/territorial government for a company to use the corporate format.

Question 25

companies that wish to operate in Canada must follow which laws?

Answer 25

provincial and federal laws and regulations

Question 26

what is a merger?

Answer 26

the result of two firms forming one company.

Question 27

what is an acquisition?

Answer 27

one company’s purchase of the property & obligations of another company.

Question 28

what is a vertical merger?

Answer 28

joining of two firms involved in different stages of related businesses.

Question 29

what is a horizontal merger?

Answer 29

joining of two firms in the same industry, thus allowing them to diversify or expand their products.

Question 30

what is a conglomerate merger?

Answer 30

uniting firms in completely unrelated industries.

Question 31

why dont mergers work?

Answer 31

Companies overpay to acquire another firm. Acquiring company overestimates cost savings &
synergies. also managers disagree about integrating operations

Question 32

what is a leveraged buyout?

Answer 32

an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing money.

Question 33

what are the funds borrowed in LBO used for?

Answer 33

to buy out stockholders in the company.

Question 34

what is a franchise agreement?

Answer 34

an arrangement where someone with a good idea for a business (the franchisor) sells the rights to use the business name & to sell a good or service (the franchise) to others (the franchisee) in a given territory.

Question 35

what are advantages of franchises?

Answer 35

Management and marketing assistance, Personal ownership, Nationally recognized name, Financial advice and assistance, Lower failure rate

Question 36

what are disadvantages of franchises?

Answer 36

Large start-up costs, Shared profit, Management regulation, Coattail effects, Restrictions on selling, Fraudulent franchisors

Question 37

what does the franchisor do?

Answer 37

Assigns territory, May provide financial aid/advice, Offers merchandise/ supplies at competitive prices, Provides training/support

Question 38

what does the franchisee do?

Answer 38

Pays upfront costs, Makes monthly payment to franchisor, Runs business by franchisor’s rules/procedures, Buys materials from franchisor/approved
supplier

Question 39

how does one avoid a franchise lemon?

Answer 39

1) Research officers & their business experience
2) Get summary of any bankruptcy & litigation
3) Estimate all costs to set up franchise
4) Review franchise contract & three most recent financial statements

Question 40

do co-operatives pay income taxes?

Answer 40

no

Question 41

who owns co-ops?

Answer 41

owned by the members

Question 42

are profits shared amongst the members of co-ops?

Answer 42

yes

Question 43

why are co-operatives formed?

Answer 43

to give members more economic power than they would have as individuals.

Question 44

what is a franchise?

Answer 44

A franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system.