Micro Chapter 7 Forms of Business Ownership

Question 1

What are the features of sole proprietorship ?

Answer 1

1. No seperate legal status
2. Unlimited liability
3. Lack of continuity
4. Freedom of transfer of business
5. Lower profit tax rate
6. No need to disclose fiinancial accounts
7. Prompt decision making
8. Limited capital sources for expansion

Question 2

What are the features of partnership

Answer 2

1. 2-∞ owners
2. 2. Unlimited liability
3. Lack of continuity
4. Freedom of transfer of business
5. Lower profit tax rate
6. No need to disclose fiinancial accounts
7. Wider scope of specialisation than sole proprietorship
8. Wider sources of capital than sole proprietorship

Question 3

What are the features of a limited company ?

Answer 3

1. Can raise capital by issuing shares
2. Seperate legal status
3. Limited liability
4. Lasting continuity
5. Seperation of ownership and management
6. Higher profit tax rate
   7.

Question 4

What are the features of a private limited company ?

Answer 4

1. 1-50 shareholders
2. Cannot issue shares for public
3. Shares cannot be transferred freely
4. Needs to disclose the financial accounts to the shareholders but not the public

Question 5

What are the features of a public limited company ?

Answer 5

1. 1-∞ shareholders
2. Can issue shares for public
3. Shares can be transferred freely
4. Needs to disclose the financial accounts to the public

Question 6

What is listed company ?

Answer 6

Public limited company that invites the public to buy its shares

Question 7

What are the advantages of issuing shares over bonds ?
(from companys’ view)

Answer 7

1. No interset burden
2. No redemption obligation
3. Issuing more shares reduces the debt to equity ratio, making it easier to obtain new bank loans

Question 8

What are the disadvantages of issuing shares over bonds ?
(from companys’ view)

Answer 8

1. New shareholders amy influence the company’s decisions. The existing shareholders’ power of control over the company will be diluted.
2. Higher risk to be taken over

Question 9

What are the advantages of issuing bonds over shares ?
(from companys’ view)

Answer 9

1. The existing shareholders’ power of control over the company will not be diluted
2. No risk of being taken over

Question 10

What are th disadvantages of issuing bonds over shares ?
(from companys’ view)

Answer 10

1. There is an obligation to pay fixed interest to bondholders
2. With redemption obligation
3. Issuing more bonds raises the debt to equity ratio, making it mre difficult to obtain new bank loans