Chapter 8

Question 1

limited partnership

Answer 1

a partnership with one or more general partners who have unlimited liability, and one or more limited partners whose liability is limited to the amount of their investment.

Question 2

general partners

Answer 2

Partners who have unlimited liability for all of the company’s business obligations and who control its operations.

Question 3

limited partners

Answer 3

Partners whose liability for the company’s business obligations is limited to the amount of their investment. They help to finance the business but do not participate in the company’s operations.

Question 4

limited liability partnership (LLP)

Answer 4

in a limited liability partnership, each individual partner is protected from responsibility for the acts of other partners, and each party’s liability is limited to harm resulting from that party’s own actions.

Question 5

board of directors

Answer 5

a group of people elected by the shareholders to handle the overall management of a corporation, such as setting major corporate goals and policies, hiring corporate officers, and overseeing the company’s operations and finances.

Question 6

conglomerate merger or acquisition

Answer 6

a merger of acquisition involving companies in unrelated businesses; done to reduce risk.

Question 7

advantages of a sole proprietorship

Answer 7

ease and low cost to create, the owner’s rights to all the profits, the owner’s control of the business, less government regulation, absence of special taxes, and ease of dissolution.

Question 8

disadvantages of a sole proprietorship

Answer 8

owner’s unlimited liability for debts, difficulty in raising capital, limited managerial expertise, large personal time commitment, unstable business life.

Question 9

advantages of partnerships

Answer 9

ease of formation, availability of capital, diversity of managerial skills and expertise, flexibility to respond to different business conditions, no special taxes, and little government control.

Question 10

disadvantages of partnerships

Answer 10

unlimited liability for general partners, potential conflict between partners, sharing of profits, and difficulty exiting or dissolving the partnership.

Question 11

advantages of corporations

Answer 11

limited liability, ease of transferring ownership, and ability to attract financing

Question 12

disadvantages of corporations

Answer 12

include double taxation of profits at a somewhat reduced rate, the cost and complexity of formation and government restrictions.