Chapter 4

Question 1

Small business

Answer 1

An independently owned and managed business that does not dominate its market. fewer than 100 employees

Question 2

New venture

Answer 2

has become operational within the previous 12 months, has adopted any of four main organizational forms—sole proprietorship, partnership, corporation, or cooperative—and sells goods or services.

Question 3

Intrapreneur

Answer 3

People who create something new within an existing large firm or organization

Question 4

Private sector

Answer 4

The part of the economy made up of companies and organizations not owned or controlled by the government.

Question 5

Entrepreneurial process

Answer 5

the entrepreneur, the opportunity, and resour-ces.

Question 6

Sales forcast

Answer 6

an estimate of how much of a product or service will be purchased by prospective customers over a specific period

Question 7

Franchise

Answer 7

An arrangement that gives a franchisee (the buyer) the right to sell the product of the franchiser (the seller).

Question 8

Business plan

Answer 8

Document in which the entrepreneur summarizes their business strategy for the proposed new venture and how that strategy will be implemented.

Question 9

Bootstrapping

Answer 9

Doing more with less.

Question 10

Collateral

Answer 10

Assets that a borrower uses to secure a loan or other credit and that are subject to seizure by the lender if the loan isn’t repaid according to the specified repayment terms.

Question 11

Debt vs equity

Answer 11

Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company

Question 12

Love money

Answer 12

investments from friends, relatives, and business associates

Question 13

private investors

Answer 13

individuals and organizations that invest their own money into a business

Question 14

angel investor

Answer 14

An angel investor usually provides capital in exchange for equity (stock in the company) or convertible debt, which is a loan that can be converted to equity at a later date

Question 15

Venture capitalist

Answer 15

a private equity investor that provides capital to companies with high growth potential in exchange for an equity stake

Question 16

most common sources of equity

Answer 16

personal savings, love money, private investors, venture capitalist

Question 17

most common sources of debt financing

Answer 17

financial institutions, suppliers

Question 18

debt financing from financial institutions

Answer 18

hard to get from a bank to start new venture so usually a personal loan instead of business loan, mortgage a house or borrow against the cash value of a life insurance policy

Question 19

trade credit

Answer 19

suppliers who provide goods (i.e., inventory) or services to entrepreneurs with an agreement to bill them later.

Question 20

incubators

Answer 20

Facilities that support small businesses during their early growth phase by providing basic services, office space, legal advice, and more.

Question 21

crowdfunding

Answer 21

the practice of collecting financial contributions from various individuals through an online platform

Question 22

franchising agreement

Answer 22

Stipulates the duties and responsibilities of the franchisee and the franchise

Question 23

reasons for success in small business

Answer 23

1. Hard work, drive, and dedication. 2. Market demand for the product or service. 3. Managerial competence. 4. Luck

Question 24

Reasons for failure in small business

Answer 24

Managerial incompetence or inexperience, neglect, weak control systems, insufficient capital

Question 25

capital

Answer 25

wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.

Question 26

forms of business ownership

Answer 26

sole proprietorship, partnership, corporation, or cooperative

Question 27

Sole proprietorship

Answer 27

Business owned and usually operated by one person who is responsible for all of its debts.

Question 28

unlimited liability

Answer 28

A person who invests in a business is liable for all debts incurred by the business; personal possessions can be taken to pay debts.

Question 29

partnership

Answer 29

A business with two or more owners who share in the operation of the firm and in financial responsibility for the firm’s debts.

Question 30

general partner

Answer 30

A partner who is actively involved in managing the firm and has unlimited liability.

Question 31

limited partner

Answer 31

A partner who generally does not participate actively in the business and whose liability is limited to the amount invested in the partnership.

Question 32

corporation

Answer 32

separate legal entities with property rights and obligations, and they have indefinite lifespans. They may sue and be sued; buy, hold, and sell property; make and sell products; and commit crimes and be tried and punished for them.

Question 33

shareholders

Answer 33

Investors who buy shares of ownership in the form of stock.

Question 34

common stock

Answer 34

common stock in a company, you have the right to vote on things like corporate policies and board of director decisions. Common stock is just one type of stock traded on public exchanges

Question 35

board of directors

Answer 35

A group of individuals elected by a firm’s shareholders and charged with overseeing, and taking legal responsibility for, the firm’s actions

Question 36

Chief executive officer

Answer 36

The highest-ranking executive in a company or organization.

Question 37

public corporation

Answer 37

A business whose stock is widely held and available for sale to the general public

Question 38

private corporation

Answer 38

A business whose stock is held by a small group of individuals and is not usually available for sale to the general public

Question 39

initial public offering (IPO)

Answer 39

when a private company becomes public by selling its shares on a stock exchange

Question 40

dividend

Answer 40

payments made by companies to their shareholders based on the number of shares they own

Question 41

private equity firms

Answer 41

Companies that buy publicly traded companies and then make them private.

Question 42

income trust

Answer 42

a company that holds securities or assets in other businesses. It is designed to distribute income to security holders on a regular basis, usually monthly or quarterly

Question 43

stock

Answer 43

A share of ownership in a corporation.

Question 44

Limited liability

Answer 44

Investors’ liability is limited to their personal investments in the corporation; courts cannot touch the personal assets of investors if the corporation goes bankrupt

Question 45

double taxation

Answer 45

A corporation must pay income taxes on its profits, and then shareholders must also pay personal income taxes on the dividends they receive from the corporation

Question 46

cooperative

Answer 46

An organization that is formed to benefit its owners in the form of reduced prices or the distribution of surpluses at year end.

Question 47

sole proprietorship advantages and disadvantages

Answer 47

are owned and operated by one person, are easy to set up, have low startup costs, and get tax benefits, owners enjoy freedom. they have unlimited liability, a lack of continuity, and limited resources

Question 48

general partnership advantages and disadvantages

Answer 48

all partners have unlimited liability. Partnerships may lack continuity, and transferring ownership may be difficult partnerships can grow by adding new talent and money, partners are taxed as individuals, and banks pre-fer to make loans to enterprises that are not dependent on one individual.

Question 49

Corporation advantages and disadvantages

Answer 49

limited liability, continuity, professional management, and improved ability to raise money by selling stock. high startup costs, complexity, and double taxation

Question 50

cooperative advantages and disadvantages

Answer 50

democratically controlled, enjoy limited liability and continuity, and are not subject to double taxation difficulty raising equity