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Econ > Ownership of Firms > Flashcards

Ownership of Firms Flashcards

1
Q

Firm

A

Planning unit of production
It takes place without a physical location (e.g. online store)

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2
Q

Plant

A

It takes place with physical location

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3
Q

Public enterprises

A

1.Owned by the government
2.Do not aim at profit maximisation

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4
Q

Features of public enterprises

A
  1. Reliable supply of goods at lower price
  2. Adequate supply of capital
  3. Better access to information
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5
Q

Private entertprises

A

Refers to firms privately owned

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6
Q

2 types of private enterprises

A

Unlimited company (sole proprietorship and partnership) and limited company ( private and public limited company)

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7
Q

Sole proprietorship

A
  1. Not a legal entity (bakery)
  2. Unlimited liabitlity
  3. Lower profit tax rate
  4. Limited continuity
  5. Simple set-up procedure
  6. Accounting Information can be kept secret
  7. Strong working incentive
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8
Q

Partnership

A
  1. Not a legal entity
  2. Unlimited liability
  3. Lower profit tax rate
  4. Limited continuity
  5. Simple set-up procedure
  6. Information can be kept secret
  7. Limited source of capital
  8. Collective responsibility
  9. 2 to infinity partner
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9
Q

Common advantage of sole proprietorship and partnership

A
  1. Lower profit tax rate
  2. Easier to set-up
  3. Accounting information can be kept secret
  4. Close relationship with employees and customers
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10
Q

Common disadvantage of sole proprietorship and partnership

A

Unlimited liablity
Limited continuity
Limited source of capital

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11
Q

Advantage of partnership over sole proprietorship

A

Wider source of capital
Wider scope of specialisation

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12
Q

Disadvantage of partnership to sole propriertorship

A

Difficult to transfer business
Slower decision making

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13
Q

Limited company

A

Limited liability
Lasting continuity
Legal entity
Separation of ownership and management
Higher profit tax rate
More complicated set up procedure ( business certificate)
Wider source of capital

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14
Q

Public limited company

A

1.Can issue shares
2.Can have no restriction on the transfer of shares however the risk of company being taken over increase
3. Need to disclose financial information to the public
Listed company must be public limited company but not all public limited company are listed company

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15
Q

Private limited company

A

Selling shares need the approval of the director
Need not to disclose financial information

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16
Q

Advantage of limited company over a sole proprietorship and a partnership

A

Wider source of capital
Lasting continuity
Limited liability
Legal entity

17
Q

Disadvantage of limited company over a sole proprietorship

A

Accounting information cannot be kept secret (Public Ltd CO.)
Higher profit tax rate
More complicated set-up procedure
Weaker incentive to work efficiently

18
Q

Share

A

Is a certificate of ownership issued by a company

19
Q

Bond or debenture

A

Certificate of debt

20
Q

Shares

A

1.Owner of the company
2.Holders receive variable rate of dividend depending on the profit of the company
3. Holders have voting rights during AGM
4. No maturity dates

21
Q

Bonds

A
  1. Creditor of the company
  2. Holders receive fixed rate of interest regularly from the company
  3. Holders do not have voting rights during AGM
  4. Holders can claim repayment prior to shareholders
  5. A fixed maturity date
22
Q

Advantage of issuing shares to small investors

A
  1. Potentially higher rate of return than bonds if company earns huge profit
  2. With voting rights in shareholders
  3. No maturity date
23
Q

Advantage of issuing shares to the company

A
  1. No interest burden
  2. No redemption obligation as there is no maturity date for shares
24
Q

Disadvantage of issuing bonds to the investors

A
  1. Potentially lower return than shares if the company earns huge profit
  2. No voting rights in shareholders’ meeting
  3. Maturity dates
25
Q

Disadvantage of issuing bonds to the company

A
  1. Interest burden
  2. With redemption obligation as there is maturity for the bonds
26
Q

Disadvantage of issuing shares to the small investors

A
  1. Unstable return
  2. Potentially have a lower return if company suffers losses
  3. Lower priority in having capital refunds when company liquidates
27
Q

Disadvantage of issuing shares to the company

A

Higher risk of being taken over is incurred. Existing shareholder’s control over the company is diluted.

28
Q

Advantage of issuing bonds to small investors

A
  1. Stable return
  2. Potentially higher return than shares if company suffers from the loss
  3. Higher priority in having capital refunds when the company liquidates
29
Q

Advantage of issuing bond for the company

A

No risk of being taken over is incurred as bond holders are only the creditor of the company

30
Q

Possible source of finance for a limited company

A
  1. To issue shares/ bonds
  2. To borrow money from a bank
  3. To use the retained profit

Econ (11 decks)

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