Chapter 6: Forms Of Business Ownership

Question 1

3 major forms of business ownership

Answer 1

1) sole proprietorship
2) partnerships
3) corporations

Question 2

Sole proprietorship

Answer 2

A business owned and usually managed by one person

Question 3

Partnership

Answer 3

A legal form of a business with two or more parties

Question 4

Corporation

Answer 4

A legal entity with authority to act and have liability seperate from its owners

Like dons

Question 5

Advantages of sole proprietorship

Answer 5

1) ease of starting and ending the business
2) being your own boss
3) pride of ownership
4) retention of company profit
5) NO SPECIAL TAX
6) less regulation

Question 6

Disadvantages of sole proprietorship

Answer 6

1) UNLIMITED LIABILITY - risk of personal loss
2) limited financial resources
3) management difficulties
4) overwhelming time commitment
5) few fringe benefits
6) limited growth
7) limited lifespan
8) possibly pay higher taxes

Question 7

Unlimited liability

Answer 7

The responsibility of business owners for all the debts of the business

Question 8

General partnership

Answer 8

A partnership in which all owners share in operating the business and in assuming liability for the businesses debt

Question 9

Limited partnership

Answer 9

A partnership with one or more general partners and one or more limited partners

Question 10

General partner

Answer 10

An owner who has unlimited liability and is active in managing the firm

Question 11

Limited partner

Answer 11

An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment

Question 12

Limited liability

Answer 12

The responsibility of a businesses owners for losses only up to the amount they invest

Question 13

Limited liability partnership (LLP)

Answer 13

A partnership that limits partners risk of losing their personal assets to only their own acts and omissions and to the act and ommisions of people under their supervision

Question 14

Partnership advantages

Answer 14

1) More financial resources
2) shares mangement and pooled knowledge and skills
3) LONGER SURVIVAL
4) shared risk
5) NO SPECIAL TAXES
6) less regulation

Question 15

Disadvantages of partnerships

Answer 15

1) Unlimited liability
2) DIVISION OF PROFITS
3) disagreement among partners
4) difficulty of termination
5) possibly pay higher taxes
6) HARD TO SELL

Question 16

Public Corporations

Answer 16

Has the right to issue shares to the public, so it’s shares may be listed on a stock exchange

Question 17

Private corporation

Answer 17

Corporation usually controlled by a small number of shareholders and its shares are not listed on stock exchange

Question 18

Advantages of corporations

Answer 18

1) limited liability
2) ability to raise more money for investment
3) size
4) perpetual life
5) ease of ownership change
6) ease of attracting talented employees
7) separation of owenership from management

Big ones: EASY MONEY, LIMITED LIABILITY, SEPERATE LEGAL ENTITY

Question 19

Disadvantages of corporations

Answer 19

1) initial cost
2) extensive paperwork
3) DOUBLE TAXATION
4) two tax returns
5) size
6) difficulty of termination
7) possible conflict with shareholders and their board of directors

Question 20

Franchise agreement

Answer 20

An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell its goods in a given territory

Question 21

Advantages of franchises

Answer 21

1) management and marketing assistance
2) personal ownership
3) nationally recognized name
4) financial advice and assistance
5) lower failure rate

Question 22

Disadvantages to franchises

Answer 22

1) large start up costs
2) shares profit
3) management regulation
4) coattail effects
5) restrictions on selling
6) fraudulent franchisors

Question 23

Co-operative

Answer 23

An organization owner and controlled by people- producers, consumers, or workers- with similar needs who pool their resources for mutual gain

Question 24

How co-ops are different t

Answer 24

They have:
Different purpose
Different control structure
Different allocation of profit

Question 25

Articles of incorporation

Answer 25

Legal authorization from the federal / provincial government for a company to use a corporate format

Question 26

4 types of business ownership (I know, it’s 4 not 3, but the textbook said 3, the teacher said 4, fuck me)

Answer 26

Sole proprietorship
Co-op
Partnership
Corporation

Question 27

Corporation pyramid / management sructure

Answer 27

Stock Holders/ Owners
Board of directors
Officers 
Managers 
Employees