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Economy > Chapter 8 "Business Organization" Study Guide Review > Flashcards

Chapter 8 "Business Organization" Study Guide Review Flashcards

1
Q

What type of business is the most popular in the United States?

A

Sole proprietorship

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2
Q

Define sole proprietorship (75% but only generates about 4% of sales)

A

Business owned and operated by 1 person

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3
Q

Why are sole proprietorships so easy to start?

A

Almost no requirements EXCEPT for business license

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4
Q

List and explain the advantages of sole proprietorships (Hint: there are 6)

A
  1. Easy to start - if not using own name, register with government
  2. Ease of management (full control) - run as you wish; fast, flexible decisions
  3. ONLY receiver of profit - doesn’t share success
  4. Doesn’t pay separate business income tax - keeps all profits after income taxes
  5. Psychological satisfaction
  6. Easy to discontinue - Quit at own will (after paying debts and obligations)
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5
Q

List and explain the disadvantages of sole proprietorships (Hint: there are 6)

A
  1. Unlimited liability - fully responsible for ALL losses and debts
  2. Hard to raise financial capital - use all available savings and banks reluctant to lend money
  3. Being small - balance costs and revenue through inventory (limited money = hard)
  4. Limited managerial experience - good in one but not the other
  5. Hard to get qualified employees - those go to bigger companies (better money, better benefits)
  6. Limited life - business dies when owner quits, dies, or sells.
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6
Q

Define partnership (only about 7% and only about 5% of sales)

A

Jointly owned by 2+ people who agree on specific responsibilities and profits

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7
Q

Explain the difference between general partnership and limited partnership

A

General (more common) - share equally responsibility and liability; 1 sued all held liable
Limited - 1 partner is not active in daily running; limited responsibility; invest to get shares and profits; lose only money put in

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8
Q

List and explain the advantages of partnerships. (Hint: there are 5)

A
  1. Easy to start
  2. Easy to manage (shared decision and specialization) - responsibility shared; each partner brings talent, strength, and skills
  3. Lack of separate taxes
  4. Attract money - easy to borrow together instead of alone; both have assets
  5. Potential for growth
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9
Q

How is a partnerships formed?

A

Could do handshake agreement, but most draw up articles of partnership - formal legal papers - lays out EVERYTHING ahead (profits/losses/division of property/buy-outs)

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10
Q

List and explain the disadvantages of partnerships (Hint: there are 3)

A
  1. Unlimited liability (general) - each partner is FULLY responsible for actions of all partners CHOOSE CAREFULLY
  2. Limited life - partner dies/leaves, partnership must be dissolved and reorganized to stay in business
  3. Potential for conflict - work habits, goals, styles, and many things
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11
Q

Define corporation (about 20% BUT about 90% of sales)

A

“The Big Boys” - company owned by millions of stockholders; limited liability for firm’s debts; if you own stock, you’re part owner of the corporation

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12
Q

Brief summary of how to start a corporation.

A

Hardest - approval from gov. to issue a charter (permission) to be incorporated
- Charter: Name, address, purpose, # of shares (stock)
- Stocks sold to investors (stockholders own stock certificates for proof of ownership)
- Corporation is profitable, stockholders receives a dividend (check)

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13
Q

List and explain the advantages of a corporation (Hint: there are 5)

A
  1. Ability to attract capital (potential growth) - sell more stocks can raise money; expand; borrow money for issuing bonds (written promise to repay with interest)
  2. Limited liability for owners - lose amount invested
  3. Hire professional managers/experts
  4. Unlimited (long) life - doesn’t die with owner; separate legal entity - name = same (continues business)
  5. Ease of transferring ownership - sell stocks and they now become part-owner; easier to fine new buyer
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14
Q

List and explain the disadvantages of corporation (Hint: there are 4)

A
  1. Double taxation - profits taxed first when paying income taxes; profits taxes 2nd when shareholders pay taxes on dividends (personal income)
    - And stockholders may pay move if they sell their stocks (capital gains tax) if they made a profit.
  2. Difficult, expensive, time consuming, hard to get charter
  3. Little voice (loss of control) - sometimes they look out for their interest and not interest of the company
  4. More regulations by the gov.
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15
Q

Define franchise

A

Renting/leasing another firm’s successful business model

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16
Q

Who is credited with developing the idea of a franchise?

A

Issac Singer

17
Q

Explain the difference between a franchisor and a franchisee

A

Franchisor - actual owner of business that let’s other investors rent/lease its name, profile, and way of business
Franchisee - investor who rents/leases business model from franchisor and hopes to recoup their investment

18
Q

List and explain the advantages of franchises (hint: there is 4)

A
  1. Respected product, excellent quality standards - follow certain rules and procedures
  2. National advertising program - parent company pays nationwide advertising
  3. Management training and support - help inexperienced owners succeed/professional advice
  4. Centralized buying power - bulk buying
    ADVANTAGES FOR FRANCHISOR ALSO
19
Q

List and explains the disadvantages of franchises (hint: there is 5)

A
  1. Sacrifices some freedom in return got parent guidance
  2. High fees and royalties - fees for right to use name and charge share of earnings
  3. Strict operating standards - hours; dress code; procedures
  4. Purchasing restrictions - buy supplies from parent/approved supplies
  5. Limited product line - agreement allows stores to offer only approved products
20
Q

What is an income statement?

A

Report showing business sale’s, expenses, net income and cash flows for a period of time

21
Q

Define net income

A

Funds left over after all the firm’s expenses, including taxes are subtracted from sales

22
Q

Define depreciation

A

A noncash charge the firm takes for the general wear and tear on its capital goods

23
Q

Define merger

A

Combination of two or more businesses to form a single firm

24
Q

List the SIX reasons businesses merger

A
  1. Faster growth
  2. Synergy
  3. Economics of scale
  4. Diversification
  5. Elimination of rivals
  6. Change/lose corporate identity
25
Q

Explain horizontal merger and give an example

A
  • Involves two firms operating and competing in the same kind of business activity
    Ex: Merger of Exxon and Mobil
26
Q

Explain a vertical merger and give an example

A

Merger between 2 companies producing different goods/services
Ex: Pixar-Disney merger

27
Q

Define congolmerate

A

Firm that has at least 4 businesses, each making unrelated products, none of which are responsible for a majority of its sales

28
Q

Define multinationals

A

International corporation whose business activities are spread among 2 or more countries

29
Q

What are the positive and negative features of a multinational?

A

Positive: Local employment where jobs are needed; allow purchase of imports; inflow of money, resources, goods and services, produce tax revenue; improve local infrastructure; diversity

Negative: Don’t always leave profits local; imports skilled labor; political corruption; support “sweatshop” labor; companies out of business; pay low wages

30
Q

What are the different ways businesses can find start-up funds?

A
  1. Start-up incubators - places to train potential entrepreneurs
  2. Venture capitalists - investment funds to new business in exchange for ownership share
  3. Angel investors - provider of funds to a new business
  4. Crowding funding - using social networking
31
Q

Define nonprofit organization and give an example

A

Not operate to generate profit
Ex: American Red Cross

32
Q

Define cooperative

A

Business organization owned and operated by a group of individuals for their shared benefit

33
Q

List and explain the THREE types of cooperatives

A
  1. Consumer - retail outlet owned and operated by consumers; pay membership fee
  2. Service - Provide service rather than goods
  3. Producer - help members sell their products
34
Q

Define labor union

A

Organized group of workers whose aim is to improve working conditions, hours, wages, and fringe benefits

35
Q

What is a professional association?

A

Nonprofit organization that works to improve image, working conditions, and skills levels of people in particular occupations

36
Q

Define chamber of commerce

A

Local organization of business whose goal is to further the interests of businesses

37
Q

What is the Better Business Bureau?

A

Association that promote collective business interests of a interests of a city, state, or other geographical area

38
Q

What is a trade association?

A

Nonprofit organization that promotes the interest of particular industries

Economy (11 decks)

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