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Flashcards in Test 6 Deck (81):
0

Types of Businesses or Business Organizations

1. Proprietorship
2. Limited Partnership
3. General Partnership
4. Corporation
5. S Corporation
6. LLC
7. Not-For-Profit Corporation
8. Public/Government Owned Corporation

1

Proprietorship

A business owned by one person
- The business's income is taxed as personal income to the owner
- The owner has unlimited personal liability
- The owner is personally responsible for the business's debt or any other obligations

2

Limited Partnership

There is a general partner and a silent/limited partner
- The general partner has unlimited personal liability
- The limited partner's liability is limited to the amount of money they have invested
- Business's income is taxed as personal income to the owner

3

General Partnership

A business owned by two or more people
- Each owner has unlimited personal liability
- The business's income is taxed as personal income to the owner

4

Corporation

A business that has a legal existence separate from it's owners
- The Corporation itself pays income tax as it's own personal income
- Stockholder's liability is limited to the amount invested

5

Stockholders

Owners of a Corporation

6

Two Options Companies Have With Profit

1. Invest in itself
2. Pay out dividends to stockholders

7

Dividends

Profit is divided among the owners
If you receive dividends you have to report it in your personal income tax

8

Capital Gains Tax

A tax on capital gains, the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price

9

S Corporation

Small business

10

How To Qualify as a S Corporation

1. Have no more than 35 shareholders

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LLC

Limited Liability Corporation

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Limited Liability Corporation

Small Corporation with Limited Liability

13

Not-For-Profit Corporation

A business that does not seek to earn a profit

14

Public/Government Owned Corporation

A business created to provide services that private enterprise is unable or unwilling to offer

15

Franchise

A license to operate an individually owned business as if it were part of a large chain

16

Cooporatives/Co-op

An association of individuals or companies organized to perform business functions for its members

17

How Are Corporations Organized?

1. Governing document
2. Stockholders
3. Bonds
4. Board of Directors

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Governing document includes what

1. Charter
2. Bylaws

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Charter

License issued by the state

20

Two Types of Stockholders

1. Preferred Stockholders
2. Common Stockholders

21

Bylaws

Set of rules by which a corporation operates

22

Preferred Stockholders

They have preference over common stockholders with regard to dividends
They are paid first
Get paid a set rate

23

Common Stockholders

They are Residual claimants (receive the income that is left over after the Preferred Stockholders are paid)
Could get paid more or less
Potential to earn more

24

Bonds

Represent credit

25

Board of Directors

In a Corporation, members of the Board of Directors are chosen by the Shareholders and get paid
In a Non-Profit Corporation they are not elected

26

What are the Board of Directors responsibilities?

1. They choose the President or CEO of the company
2. Make decisions about expansion, development, and dividends
3. Producing annual report (which is available to all shareholders)

27

Proxy

Written authorization allowing the Directors to vote shares as instructed
(at the Annual Shareholders Meeting when shareholders don't show up)

28

What is a businesses responsibility to the to the consumers?

1. Product Quality
2. Product Packaging
3. Product Labeling
4. Consumer Safety (must warn consumers about potential problems)
5. Environmental Sensitivity

29

Why is product packaging important?

1. Protects the product
2. Provides information about the product
3. Enhances the appearance of the product

30

Why is product labeling important?

1. It's informational
2. Gives testing labels

31

What is the goal of a business?

Make money

32

What are a businesses major expenses?

1. Wages and Salaries
2. Research and Development
3. Marketing
4. Health Insurance
5. Upgrading of Tools and Facilities

33

Where does the businesses money come from?

1. Internal Funds
2. External Funds
(Most of the money comes from borrowing)

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Internal Funds

Funds that come from the sale of products and services

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External Funds

Funds that come from borrowing, selling stock, and reducing expenses

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Types of Borrowing

1. Short Term Loan
2. Long Term Loan

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Short Term Loan

Usually paid back in a year
Used to finance the everyday cost of doing business

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Trade Credit

Where you charge purchases and pay for them at a later date
You can also borrow money from a bank

39

Commercial Paper

Can sell it to investers
Like a IOU or Bond
Pay it back with interest

40

Long Term Loans

Paid back in a year or more

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Common Sources for Long Term Loans

1. Retaining you earnings
2. Borrow the money (through mortgage or selling bonds)

42

Who regulates the Stock Market

The Federal Government

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Securities and Exchange Commission (SEC)

Principle agency who regulates the stock market

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Prospectus

A report that contains information about the company

45

Motto for investing and meaning

Caveat Emptor
(Buyer beware)

46

How is stock offered to the public for sale?

There is usually a Middleman (underwriter) who advances money to the corporation and then sell the companies stock to the public

47

Securities Exchanges

A market where brokers meet to buy and sell stocks and bonds

48

Over-the-Counter Market

Consists of brokerage firms from around the country that buy the securities of smaller unlisted firms and then sells them to the public

49

Two Types of Shareholders

1. Investors
2. Speculators

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Investors

They buy stock in order to share the profits for a long time

51

How do investors make money?

1. Dividends
2. Capital Gains

52

Speculators

They buy and sell in order to make a fast profit

53

Two Types of Speculators

1. Bulls
2. Bear

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Bulls

They hope to profit by correctly predicting an increase in the value of the stock ("Buy-long")

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Bear

They hope to profit by correctly predicting a decrease in the value of a stock ("Sell-short")

56

How do you determine the health of a business?

1. Balance Sheet
2. Income Statement

57

Balance Sheet

Summarizes the corporations
1. Assets
2. Liability
3. Net worth

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Assets

Things that the company owns

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Liability

Things the company owes

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Net worth

The difference between liability and assets

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Account Receivable

Sums owed to the company by customers

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Inventories

Merchandise that the company owns

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Accounts Payable

Money that the company owes to its suppliers

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Notes Payable

Short term loans owed by the corporation

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Mortgage

Long term loan

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Net Worth (Under Balance Sheet)

Portion of a companies assets belonging to its owners after its obligations have been met

67

Income Statement can also be called what?

Profit and Law Statement

68

Income Statement

Shows how much money the corporation has made over a certain amount of time

69

Mutual Fund

A corporation that sells stock and uses the proceeds to invest or speculate in the Securities Market

70

How does a Mutual Fund work?

Lots of people put their money together to invest into lots of companies

71

Implicit Costs

Costs that don't require an actual monetary payment

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Explicit Costs

Costs that do require an actual monetary payment

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Opportunity Costs

What a resource could have earned had it been employed in an alternative use

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Fixed Costs

Costs that do not change as the level of production increases

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Variable Costs

Costs that do change as the level of production increases

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Total Costs

= Fixed Costs + Variable Costs per unit x Quantity

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Marginal Costs

The addition to total cost resulting from the production and sale of one additional unit of output

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Average Fixed Cost

= Fixed Cost/Quantity Produced

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Average Variable Cost

= Total Variable Cost/# of units produced

80

Average Total Cost

= Average Fixed Cost + Average Variable Cost