Business 201 - Chapter 3

Question 1

5 Main Legal Structure Factors

Answer 1

Ease of Setup
Degree of Control
Magnitude of Risk
Financial Capacity
Required Skills

Question 2

What are the 3 legal structures

Answer 2

Sole Proprietorship
Partnership
Corporation

Question 3

What is a sole proprietorship

Answer 3

One individual, business and individual are one entity

Question 4

What is a partnership

Answer 4

Two or more individuals, partners and business are still tied together

Question 5

What is a corperation

Answer 5

Separate entity from the owners
Established by the process of incorperation
Board of directors

Question 6

What is joint liability

Answer 6

Each individual is fully liable for the business

Question 7

What is several liability

Answer 7

Each individual is liable for their share of ownership

Question 8

What is a buy-sell agreement

Answer 8

Details the sale and purchase of the business interest of the selling partner

Question 9

What is an LLP

Answer 9

Limited Liability Partnership
limited partners contribute funds but do not participate in management
General partners still assume liability

Question 10

What does a board of directors do?

Answer 10

Oversee and advise management on behalf of the organizations shareholders

Question 11

Which structure provides the most protection?

Answer 11

Corperation, shareholders have limited liability

Question 12

Difference between a private and a public corperation?

Answer 12

Ownership is either private, or public (traded)

Question 13

How is stock issued in a corperation?

Answer 13

IPO - initial public offering

APO - additional public offering / secondary offering

Question 14

What is capital structure

Answer 14

Organizations use of debt, internal cash reserves, and external equity based investments, in support of operational activities

Question 15

What are the 3 main sources of funds?

Answer 15

Operations
Credit Facilities
Equity Financing

Question 16

What are retained earnings?

Answer 16

Net earnings accumulated over organizations history that is has chosen to hold within

Question 17

What are credit facilities?

Answer 17

Debt taken on to support business activites, comes with legal responsibility to pay, regardless of financial position

Question 18

Examples of short-term credit facilities

Answer 18

Accounts Payable
Accounts Recievable
Line of Credit

Question 19

What is collateral?

Answer 19

Capital or monetary assets used to secure a credit facility

Question 20

Examples of long-term credit facilities

Answer 20

Bonds
Mortgages
Lease

Question 21

Equity options

Answer 21

Private Equity

Public Equity

Question 22

Sources of private equity

Answer 22

owners personal resources
angel investors
private equity firms
venture capitalists

Question 23

What does equity represent?

Answer 23

An ownership stake in the business

Question 24

What is public equity

Answer 24

Stocks issues through IPO or APO

Question 25

Proceeds of trading price goes to who?

Answer 25

The seller, not the company itself

Question 26

What is price dilution

Answer 26

Decrease in stock price due to APO

Question 27

What is the market capitalization value?

Answer 27

Market value of an organization - number of shares multiplied by the current price per share

Question 28

What is a prospectus for?

Answer 28

Filed with the security commission, allows invests to make informed decision on risk for the IPO

Question 29

Sources of capital for a NFP?

Answer 29

Operation
Debt Financing
Philanthropy / Fundraising