econ ch 3

Question 0

sole proprietorship

Answer 0

a business owned and run by one person

Question 1

non profit organizations

Answer 1

buisness like way to promote the collective interests of it’smembers rather than to seek financial gain for it’s owners

Question 2

what are 3 main forms of business organization in economy today?

Answer 2

sole proprietorship, the partnership, and corporation

Question 3

advatages to sole proprietorship

Answer 3

1. ease of starting up
2. relative ease of management
3. the owner enjoys the profits of successful management without having to share them with other owners
4. the proprietorship does not have not have to pay separate business income taxes because the bisness is not recongnized as a seperate legal entity
5. psychological statisfaction
6. the ease of gettingout of business

Question 4

disadvantages to a sole proprietorship

Answer 4

1. the owner has unlimited liability
2. the difficulty in raising financial capital
3. size and efficaincy
4. the proprietor often has limited managerial experience
5. difficulty of attracting qualified employees
6. limited life

Question 5

unlimited liability

Answer 5

the owner is personally and fully responsible forall losses and debts of the business

Question 6

inventory

Answer 6

a stock of finished goods and parts in reserve- to satisfy customers or to keep a production flowing smoothly

Question 7

limited life

Answer 7

firm legally ceases to exsist when the owner dies, quits, or sells the business

Question 8

partnerships

Answer 8

a business jointly owned by 2 or more persons

Question 9

types of partnerships?

Answer 9

general partnership and limited partnership.

Question 10

general partnership

Answer 10

in which partners are responsible for the management and financial obligations of the business

Question 11

limited partnership

Answer 11

at least one partner is not active in the dailey running of the business, altough he or she may have contributed funds tofinance the operation

Question 12

advantages to partnership

Answer 12

1. ease of establishment
2. each partner brings different areas of expertise to the business
3. lack of specail taxes on partnership
4. partnerships can usually attract financial capital more easily than proprietorships
5. the slightly larger size, making more efficient operations
6. many partnerships find it easier to attract top talent into their organizations

Question 13

disadavantages of partnerships

Answer 13

1. each partner is fully responsible for the acts of other partners
2. the potential for conflict between partners

Question 14

limited partnership

Answer 14

the limited partners have limited liability

Question 15

bankruptcy

Answer 15

a court granted permission to an individual or business to cease or delay payments

Question 16

.

Answer 16

.

Question 17

how to form a partnership

Answer 17

• Relatively easy to start

* Articles of Partnership: Formal legal papers which specify arrangements between partners

Question 18

how to form a corporation

Answer 18

•Very formal and legal arrangement
•Incorporation (or forming a corporation) must file for permission from the state where business will have headquarters
•Charter: A government document that gives permission to create a corporation if approved
–States the company name, address, purpose of business, and the number of shares of stock, or ownership certificates, with in the firm

Question 19

corporations

Answer 19

A form of business organization recognized by law as a separate legal entity having all as an individual
Can buy and sell property
enter into legal contracts and sue & be sued
Account for 1/5 of the firms in the U.S.
Account for 90% of all sales

Question 20

forming corporations

Answer 20

•Very formal and legal arrangement
•Incorporation (or forming a corporation) must file for permission from the state where business will have headquarters
•Charter: A government document that gives permission to create a corporation if approved
–States the company name, address, purpose of business, and the number of shares of stock, or ownership certificates, with in the firm

Question 21

disadvantages of corporations

Answer 21

• It is difficult and expensive to get a charter
• The owners, or stockholders, have little power to affect the company
• The profits that the company makes are taxes twice, which is known as double taxation. The corporation itself pays income tax on its profits. Then its shareholders pay income tax on the dividend income that their shares earns
• The government has more rules for corporations than for other forms of business

Question 22

advantages to corporation

Answer 22

• Easy to get money: Corporations may borrow money by selling bonds, a written statement that the borrower will repay the principle with interest.
• The directors hire professional managers, shareholders do not have to know much about said business
• Shareholders have limited liability
• Corporation continues to function even with owners death
• Easy to transfer ownership of the corporation because shareholders can sell their stocks

Question 23

charter

Answer 23

a government document that gives permission to create a sorporation-is granted

Question 24

stock

Answer 24

the ownerships certificates in the firm

Question 25

stockholders

Answer 25

the shares sold toinvestors

Question 26

dividend

Answer 26

a check representing a portion of the corporate earnings- to each stockholder

Question 27

common stock

Answer 27

•Common Stock
•Investors become owners with certain ownership rights, depending on type of stock purchased:
•Common Stock: Basic ownership of corporation
–Owner usually receives 1 vote for each share of stock
–Used to elect board of directors who direct the corporation’s business by setting policies/goals
–The board hires a professional management team to run the business on a daily basis

Question 28

bond

Answer 28

written promise to repay the amount borrowed at a later date

Question 29

principal

Answer 29

the amount borrowed

Question 30

interest

Answer 30

the price paid for the use of anothers money

Question 31

income statement

Answer 31

a report showing a business sales, expenses, and profits for a certain period-to illustrate the process

Question 32

merger

Answer 32

a combination of 2 or more bussinesses for form a single firm

Question 33

depreciation

Answer 33

a non-cash charge the firm takes for the general wear and tear on it’s capital goods

Question 34

cash flow

Answer 34

the sum of net income and non-cash charges such as deprecaition, is the bottom line, or real measure of profits for the business

Question 35

•There are two ways in which a company can look to grow

Answer 35

–Growth through reinvestment

–Growth through mergers

Question 36

Horizontal Merger

Answer 36

Two similar firms join together

Example: two different banks merge

Question 37

Vertical Merger

Answer 37

The coming together of two or more firms that make different parts of the same general product.

Example: Auto maker merging with a tire company

Question 38

cooperatives or Co-op

Answer 38

•Group of people who get together to do something that will help all the members economically.

Question 39

Consumer cooperative:

Answer 39

buys large amounts of a good such as food or clothes= cheaper price

Question 40

–Service cooperative

Answer 40

provides services such as insurance, credit, and baby-sitting
•Example credit Unions

Question 41

Producer cooperative-

Answer 41

help sell their products

Question 42

•Labor Unions-

Answer 42

created to help themselves get better pay and working conditions
–Method used collective bargaining, where a group from the union gets together with business managers to try to reach an agreement about pay, hours, benefits

Question 43

•Professional associations-

Answer 43

groups of people in special occupations, such as doctors.

– Improve conditions, skills, image

Question 44

business in the community

Answer 44

•Chamber of commerce
–Protect businesses in the community and help the community as a whole.
•Better Business Bureau
–Provides information about community businesses and protects consumers

Question 45

conglomerates

Answer 45

a firm that has at least 4 businesses, each making unrelated products, none of which is responsible for a majority of it’s sales

Question 46

multinational

Answer 46

a corporation that has manufactured or service operations in a number ofdifferent countries at one time

Question 47

credit union

Answer 47

a financial organization that accepts deposits from, and makes loans to, employees of a particular company or government agency

Question 48

collective bargaining

Answer 48

process of negotaitiation between union and management represenatives over pay, benefits, and job related matters

Question 49

public utilities

Answer 49

investor or municipal owned companies that offfer important products to the public, such as water or electric service

Question 50

diversification

Answer 50

ensuring that their over all profits will be protected

Question 51

Consumer cooperative

Answer 51

: buys large amounts of a good such as food or clothes= cheaper price

Question 52

–Service cooperative

Answer 52

provides services such as insurance, credit, and baby-sitting
•Example credit Unions

Question 53

Producer cooperative-

Answer 53

help sell their products

Question 54

•Labor Unions-

Answer 54

reated to help themselves get better pay and working conditions
–Method used collective bargaining, where a group from the union gets together with business managers to try to reach an agreement about pay, hours, benefits

Question 55

•Professional associations-

Answer 55

groups of people in special occupations, such as doctors.

– Improve conditions, skills, image

Question 56

•Chamber of commerce

Answer 56

–Protect businesses in the community and help the community as a whole.

Question 57

•Better Business Bureau

–

Answer 57

Provides information about community businesses and protects consumers