Test 2 Flashcards
What is a sole proprietorship?
A business that is owned, and usually managed, by a single individual.
What are the advantages of a sole proprietorship?
- You get all the money.
- You get to make all the decisions.
- You’re your own boss.
- Ease of establishment - little paperwork to start.
- Income is taxed as personal income.
What are the disadvantages of a sole proprietorship?
- If it goes bad it’s all on you.
- Unlimited liability (personal assets at risk)
- Lack of performance.
- Limited financial resources (only your worth is considered in a bank loan)
What is a partnership?
A voluntary agreement under which two or more people act as co-owners of a business for profit.
What is a general partnership?
Each partner has the right to participate in the company’s management and share in profits - but also has unlimited liability for any debts the company incurs.
What are the advantages of a general partnership?
- Bigger talent pool - share resources.
- Ease of establishment.
- Share responsibility.
- Income taxed as personal income.
What are the disadvantages of a general partnership?
- Potential for disagreements.
- Unlimited liability.
- Lack of continuity.
- Difficulty in withdrawing from a partnership.
What is a limited partnership?
A partnership arrangement that includes at least one general partner and at least one limited partner.
What is a limited liability partnership (LLP)?
A form of partnership in which all partners have the right to participate in management and have limited liability for company debts.
What are the characteristics of a limited partnership and LLP?
- Money invested.
- Ran by general partner.
- Only held accountable for your own investment.
- Responsible for your own work.
- Doctors/Lawyers offices.
What is a corporation?
A form of business ownership in which the business is considered a legal entity that is separate and distinct form its owners.
What are the advantages of a corporation?
- Limited liability.
- Permanence.
- Easy to transfer ownership.
- Ability to raise large amounts of money.
- Ability to make use of specialized management.
What are the disadvantages of a corporation?
- Difficult to establish and regulate.
- Double taxation (Corp is taxed on profit & personal tax)
- Conflicts - 51% ownership.
- More paperwork, less secrecy.
What is a limited liability company (LLC)?
Formed like corporations but treated like partnerships.
What are the advantages of LLCs?
- Limited liability.
- Flexible ownership.
- Income taxed as personal income.
What are the disadvantages of LLCs?
- Recognized in a single state.
- State franchise tax.
- Limits on types of firms that can form LLCs.
What are 3 types of mergers?
- Horizontal - in the same business.
- Vertical - in the same supply chain.
- Conglomerate - completely unrelated businesses.
What is a franchise?
A licensing agreement under which a franchisor allows franchisees to use its name, trademark, products, business methods, and other property in exchange for monetary payments and other considerations.
What are the advantages of a franchise?
- Name recognition.
- Business plan mapped out for you (less risk)
- Training and support.
- Easier access to funding.
What are the disadvantages of a franchise?
- Cost.
- Lack of control.
- Negative halo effect.
- Growth challenges.
- Restrictions on sale.
- Poor execution.
What is financial accounting?
The branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders.
What is managerial accounting?
The branch of accounting that provides reports and analysis to managers to help them make informed business decisions.
What are 3 basic financial statements?
- Balance Sheet
- Income Statement
- Statement of cash flows
What does the Balance Sheet report?
Reports the financial position of a firm by identifying and reporting the value of the firm’s assets, liabilities, and owner’s equity.