Ch3

Question 1

Sole proprietorship

Answer 1

A business owned and run by one person

Most numerous type but small in size

Question 2

Advantages of sole proprietorship

Answer 2

Easy to start
Easy to manage
Owner makes and takes profits, no need to share
Business pays no income tax
Psychological satisfaction- being your own boss
Easy to get out of business

Question 3

Disadvantages of sole proprietorship

Answer 3

Unlimited liability- owner is responsible for all losses and debts
Difficult to raise financial capital
Difficult to maintain and fund employees and inventory
Difficult to attract qualified employees
Limited life- business stops when owner quits sells etc

Question 4

Partnerships

Answer 4

Businesses owned by two or more people

Question 5

General partnership

Answer 5

All parties are responsible for the business

Question 6

Limited partnership

Answer 6

At least one partner is silent

Question 7

Articles of partnership

Answer 7

Formal legal papers to define division of profits and losses

Question 8

Advantages of partnerships

Answer 8

Easy to start
Easy to manage
Limited taxes- individual income tax but no business tax
Easier to get bank loan
Bigger size equals more efficient operations
Easier to find qualified employees

Question 9

Disadvantages of partnerships

Answer 9

All partners are fully responsible for each other
Potential for conflict
Limited life if partner quits dissolving partnership

Question 10

Bankruptcy

Answer 10

Court granted permission to individual or business to stop or delay debt payments

Question 11

Corporations

Answer 11

Business organization recognized by law as a separate legal entity having all their rights of an individual

Question 12

Forming a corporation

Answer 12

File for permission from state where the business will be HQ’d
Charter- charter specifies number of shares of stock or ownership certificate in the firm

Question 13

Charter

Answer 13

Govt document granting permission in incorporate

Question 14

Dividend

Answer 14

A check representing a portion of corporate earnings go to es h shareholder

Question 15

Common stock

Answer 15

Basic ownership of a company

Receive a vote for each share

Question 16

Preferred stock

Answer 16

Nonvoting ownership shares of corporation

First to receive dividend and investment back

Question 17

Securities and exchange commission (SEC)

Answer 17

Federal body that regulates stocks and financial exchange

Question 18

Advantages of stock

Answer 18

Easy to raise money
Ability to hire professional managers to run firm
Unlimited life
Easy to transfer ownership

Question 19

Principal

Answer 19

Amount borrowed

Question 20

Interest

Answer 20

Higher rate with long term bonds (more risk)

Question 21

Disadvantages of stock

Answer 21

Difficult to get charter
Shareholders have little say
Separation of ownership
More govt regulation

Question 22

Income statement

Answer 22

Report showing sales expenses and profit for period of time

Question 23

Net income

Answer 23

Revenue minus expenses

Question 24

Depreciation

Answer 24

Gradual wear on capital goods during production

Question 25

Cash flow

Answer 25

Some of net income and non cash charges

Question 26

Merger

Answer 26

Combination of two or more businesses to form a single firm

Question 27

Reasons for merging

Answer 27

Grow firm faster Higher efficiency Eliminate a rival Lose an old bad identity

Question 28

Horizontal merger

Answer 28

Two or more firms that produce the same kind of product (two banks)

Question 29

Vertical merger

Answer 29

Firms from different manufacturers ( auto maker and tire company)

Question 30

Conglomerates

Answer 30

Firm that has at least 4 businesses each making unrelated products

Question 31

Diversification

Answer 31

Produce different goods to protect overall sales

Question 32

Multinationals

Answer 32

Corporation with manufacturing in more than one country Pay taxes in each country Can be conglomerates but called multinationals

Question 33

Advantages of multinationals

Answer 33

Bring new products to an area | Low cost of production

Question 34

Disadvantages of multinationals

Answer 34

Pay low wages | Slows development of local businesses

Question 35

Nonprofit organization

Answer 35

Operates a business like way to promote the collective interests of its members No financial gains for owners No stock

Question 36

Cooperative coop

Answer 36

Voluntary association of people formed in a group to benefit its members

Question 37

Consumer coop

Answer 37

Buys bulk amounts of goods on behalf of its members, keeps low costs

Question 38

Service coop

Answer 38

Members can borrow at better rates and faster than Normal | Credit unions

Question 39

Producer coop

Answer 39

Helps members sell their products | Outlet malls

Question 40

Labor unions

Answer 40

Workers formed to represent its members interests in employment matters

Question 41

Collective bargaining

Answer 41

Union negotiations with management

Question 42

Professional associations

Answer 42

Group is specialized occupation that works to improve the working conditions

Question 43

Chamber of commerce

Answer 43

Promotes the welfare of its members and the community

Question 44

Better business bureau

Answer 44

Nonprofit organization sponsored by local businesses to provide general info on companies

Question 45

Direct role of govt

Answer 45

Govt supplies goods directly to the people - Postal service - federal deposit insurance corporation

Question 46

Indirect role of govt

Answer 46

Public utilities: companies that offer important products to the public - water and electrical service