Lecture 2 Flashcards
(13 cards)
What are the 3 forms of business ownership?
Sole proprietorship/ sole trader
Partnership
Corporation
What are the 6 advantages of sole proprietorships?
- Ease of starting and ending the business
- Being your own boss
- Pride of ownership
- Leaving a legacy
- Retention of company profits
- No special taxes
What are the 7 disadvantages of Sole Proprietorship?
- Unlimited liability - the responsibility of business owners for all debts of the business
- Limited financial resources
- Management difficulties
- Overwhelming time commitment
- Few fringe benefits
- Limited growth
- Limited life span
What are the 2 major types of partnership? Define them
General Partnership - All owners share in operating the business and in assuming liability for the business’s debt.
Limited partnership- A partnership with one or more general partners and one or more limited partners
Name the 5 advantages of partnership
- Limited liability (limited partners)
- More financial resources
- Shared management and complimentary skills/knowledge
- Longer survival
- No special taxes
Name the 4 disadvantages of partnership
- Unlimited liability (general partner)
- Division of profits
- Disagreements among partners
- Difficulty of termination
What are corporations?
State-charted legal entity with authority to act and have liability separate from its owners
Enabled many people to share it’s ownership
Advantages of corporations
- Limited liability
- Ability to raise money for investment
- Equity and debt financing
- Size
- Perpetual Life
- Ease of ownership change
- Ease of attracting talented employees
- Separation of ownership and management
Name the 7 disadvantages of corporations
- Initial cost
- Extensive paperwork
- Double taxation
- Two tax returns
- Size
- Difficulty of termination
- Possible conflict with stockholders and board of directors
Define debt finance
Involves the borrowing of money, and it’s main advantage is that the owner does not give up any control of the business
Define equity financing
Involves selling a portion of the business(equity). It’s main advantages are that it places no additional financial burden on the company and there is no obligation to pay back the money acquired through it
Define merger and acquisition
Merger - the result of two things firms forming one company
Acquisition - one company’s purchase of another company (property and obligations)
What are the 3 types of mergers? Define them
Vertical - the joining of two companies in different stages of related business, or different states of the supply chain
Horizontal - the joining of two firms in the same industry
Conglomerate - the joining of firms in completely unrelated industries
