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Introduction to Business > Topic 2 : Organisations and Firms > Flashcards

Topic 2 : Organisations and Firms Flashcards

1
Q

How would you qualify an entrepreneur?

A

A person that risks WEALTH, TIME and EFFORT to develop, for profit, an innovative product or a new way of doing something.

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2
Q

Name 5 characteristics that an entrepreneur should possess.

A

Possible answers :
Intuitive, patient, frugal, fearless, creative, charismatic, innovative, productive, persistent, friendly.

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3
Q

What is called the process of creating and managing a business to achieve desired objectives?

A

Entrepreneurship

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4
Q

What are the requirements to succeed in Entrepeneurship?

A
  1. Risk propensity (tendancy to risk)
  2. Innovation
  3. Creativity
  4. Reward
  5. Intuition
  6. Persistence
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5
Q

Name the 4 stages of starting a business.

A

Stage 1 : Concept or general idea

Stage 2 : Business Plan

Stage 3 : devise strategy
to guide
planning and
development

Stage 4 : Decision making

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6
Q

What’s a business plan? What does it include?

A

Document showing the rationale for a business : a step-by-step explanation of how the business will achieve its goals.

It acts as a reference doc

It includes… an explanation of the business, the competition analysis and an Income/expanse estimation

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7
Q

What does it take to make money?

A

Money.

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8
Q

Explain thoroughly what a DEPT is. (financial recource)

A

A dept is when you borrow financial resources from a bank (or another lending institution). They can grant a line of credit or a trade credit. It sometimes require collateral

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9
Q

Explain thoroughly what EQUITY is as a financial resource.

A

It’s when the owner brings money $ and useful personal assets such as time, furnitures, cars, equipment, computers, etc. The contribution becomes part of ownership interest in the firm.

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10
Q

What are Business Angels and Venture Capitalists?

A

Entities that agrees to provide some funds for a new business IN EXCHANGE FOR AN OWNERSHIP INTEREST. They require a share of the profit or a share of the business.

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11
Q

You have 2 choices for entering the market : you either ____ or ____ a business.

A

Buy or build

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12
Q

What are the advantages to buy a business when entering the market?

A

You already have a built-in network of customers, suppliers and distributors.

It reduces guesswork

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13
Q

What is the main disadvantage of buy a business when entering the market?

A

You absorb all the existing problems that the business had.

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14
Q

What is required when building a business from scratch?

A
  • A lot of financial ressources, because it’s expensive
  • A lot of promotional efforts to familiarize the customers with the business
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15
Q

What is the main reason to create a firm?

A

Reducing transaction costs

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16
Q

What are transaction costs?

A

Cost incurred in making an economic exchange. Cost of participating in a market.

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17
Q

What do we want to minimize when creating a firm? (2)

A
  • The costs of exchanging resources with the environement
  • The bureaucratic costs of exchange within a company
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18
Q

How do you minimize the transaction costs.

A

Pursuing the quest of efficiency : we have to cooperate to reach a common goal.

you can :

  • Assign tasks
  • Pool employee skills to gain from specialization
  • Monitor work
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19
Q

What kind of conflicts of interest can we encounter in a firm? Even in the quest for efficiency.

A

As business grows, the owner(s) have to delegate the tasks. So some decision making tasks are assigned to some employee. The individuate’s goals could be in conflict with the organisation’s goals.

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20
Q

What is the term that is defined by the next sentence? : “having the legal title of a resource or a good.”

A

Ownership

21
Q

What is the term that is defined by the next sentence? : “having the ability to determine the use of those goods and resources.”

A

Control

22
Q

What does T.M.T. stands for and what is its purpose.

A

Top Management Team : They make the decisions about resource allocation and the implementation of strategies in a firm.

23
Q

T or F. : members of the TMT have the right to buy company stocks (shares of company ownership) at a fixed price.

A

True

24
Q

What does the TMT recieves if the firm performs well? This is part of which solution to Agency problem

A

They receive high rewards. Its part of an incentive scheme.

25
Q

Describe what is an AGENCY PROBLEM

A

A conflict of interest inherent in any relationship where one party is expected to act in the best interest of another.

26
Q

How can agency problems be solved? And, In which of the principle types of firms is it mostly encountered

A

With incentive schemes or/and with the implantation of a Board of directors. Encountered in Corporations

27
Q

T or F : Shareholders are directly affiliated with the company.

A

False. They are at the external of the company.

28
Q

Which members or group of members are in the internal part of the company?

A

The Board of Directors, TMT, CEO, Management, Staff.

29
Q

Who’s in the Board of Directors?

A

A group of individuals elected by the company’s shareholders to oversee the management of the corporation.

30
Q

What is the main goal of the Board of Directors. Where are they positioned in the monarchy?

A

They ensure the seperation of Ownership (Shareholders) and Control (Management)

Shareholders
->Board of directors<-
TMT
Management
Staff

31
Q

T or F : The “shareholders” is the entity at the highest rank in the management of the company.

A

False. Its the CEO. The shareholders aren’t in the management of a company, because they are external.

32
Q

What are the 3 principal Firm types?

A
  • Sole proprietorship
  • Partnership
  • Corporation
33
Q

Connect the right Firm type with the right definition :

A.Joint venture
B.Cooperative
C.Limited Liability Company
D.Sole proprietorship
E. Partnership
F. Private Corporation
G. Public Corporation

  1. Association of 2 or more people as co-owners. (__)
  2. Partnership established for a project or limited time (__)
  3. Legal entity created by the state whose assets and liabilities are separate from its owners in which shares of stock can be freely purchased, sold or traded. (__)
  4. Company owned and operated by one person. (__)
  5. Formed by individuals or small firms to reap the benefits of belonging to a larger organization. (__)
  6. Legal entity created by the state whose assets and liabilities are separate from its owners. They aren’t required to disclose financial information. (__)
  7. Ownership that provides limited liability and taxation, but also has fewer restrictions. (__)
A
  1. E
  2. A
  3. G
  4. D
  5. B
  6. F
  7. C
34
Q

T or F : A private corporation can be converted into a public corporation.

A

True

35
Q

What would be the advantage of converting a private corporation into a public one?

A

The sale of stock on the public market can raise additional capital and grow faster.

36
Q

What are the pros and cons of a Proprietorship?

A

Pros :
+ Easy and low cost formation
+ High level of secrecy
+ Owner keeps all the profit
+ flexibility and control
+ Gov. regulation is only minimal taxes paid once

Cons :
- Unlimited liability
- Rare external fundings
- Owner need many diverse skills
- Success is tied to the owner
- Lack of qualified employees
- Higher taxation
- Owner is the only one responsible for risks and financial obligations

37
Q

Does a sole proprietorship type of firm focuses more on manufacturing or on service?

A

Service

38
Q

What is the most common form of business organisation? (firm type)

A

Sole proprietorship

39
Q

T or F : A partnership maximizes the disadvantages of sole proprietorship. Because twice the people : twice the problems.

A

False. In fact it minimizes the disadvantages

40
Q

What are the pros and cons of a partnership type of firm?

A

Pros :
+ Easy to organize
+ Availability of capital & credit
+ Combined knowledge and skills
+Few government regulations
+ Partners report their share of profits
+ Pay taxes as individuals.

Cons :
- unlimited liability
- responsibility for others’ decisions
- have to go trough the procedures of creating a new agreement if the partnership changes
-Difficult to sell interests
-Uneven distribution of profits
-Hard to find external funds

41
Q

Who owns the shares of a corporation?

A

Usually different individuals

42
Q

What are the pros and cons of a corporation?

A

Pros :
+ Limited liability
+ Ease of transfer of ownership
+ Perpetual life
+ Easier to find and secure fundings
+ Potential for expansion
+ Fast growth

Cons
-Double taxation
-expensive to constitue
- disclosure of information to the government and the public
-agency problems

43
Q

When a firm wants to grow, what are their options (3)?

A
  1. Organic development = Internal grow
  2. Alliances = Cooperation with another firm
  3. Mergers & Aquisitions = mutual decision to join together
44
Q

What are corporate raiders?

A

A company or individual who wants to acquire or take over another company. Usually offers to buy some or all of its stocks at a premium in a tender offer.

45
Q

What’s a White knight?

A

A preferred firm to acquire the company.

46
Q

What’s a poison pill? (regarding acquisition)

A

Issue rights to stakeholders to buy stocks at lower price to pave way and eliminate an attempted hostile takeover.

47
Q

What’s a shark repellent?

A

Different strategies to avoid takeovers

48
Q

What is it called When a group of investors borrows money from banks to acquire a company. (and then uses the assets of the purchased company to repay the loan)

A

A leveraged buy out

Introduction to Business (9 decks)

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