CH 8 ECON: Types of Business Organizations

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business organization
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enterprise that produces goods or provides services, usually in order to make a profit
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sole proprietorship
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business organization owned and controlled by one person
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limited life
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situation where a business closes if the owners dies, retires, or leaves for some other reason
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unlimited liability
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a business owner is responsible for all the business’s losses and debts
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partnership
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business co-owned by two or more partners who agree on how responsibilities, profits, and losses of that business are divided
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general partnership
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one in which at least one partner is not involved in the day-to-day running of business and is liable only for the funds he or she has invested
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limited liability partnership (LLP)
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all partners are limited partners and not responsible for the debts and other liabilities of other partners
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corporations
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business owned by stockholders, who own the rights to the company’s profits but face limited liability for the company’s debts and losses
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stocks
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share of ownership in a corporation
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dividend
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pat of a corporation’s profit that is paid out to stockholders
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public company
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issue stock that can be publicly traded
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private company
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controls who can buy or sell its stock
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bond
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contract issued by a corporation that promises to repay borrowed money, plus interest, on a fixed schedule
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limited liability
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a business owner’s liability for debts and losses of the business is limited
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unlimited life
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corporation continues to exist even after an owner dies, leaves the business, or transfers his or her ownership
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horizontal merger
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combining of two/more companies that produce the same product or similar products
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vertical merger
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combining of companies involved in different steps of producing or marketing a product
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conglomerate
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is a business composed of several companies, each one producing unrelated goods or services
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multinational corporation
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large corporation with branches in several countries
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franchise
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business that licenses the right to sell its products in a particular area
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franchisee
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semi-independent business that buys the right to run a franchise
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cooperative
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business operated for the shared benefit of the owners, who also are its customers
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nonprofit organization
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business that aims to benefit society, not to make a profit
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when goods and services are provided for a profit, the enterprise is a business organization that meets consumers demands and allocates jobs and pays taxes
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what is a sole proprietorship?
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70%
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what % of businesses in the US are sole proprietorships?
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they only account for 5% of all the sales
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what % of sales in the US do sole proprietorships account for?
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selling all types of goods and services and providing all types of services
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where can sole proprietorships be found?
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Need to find the $ necessary to rent the space, fix the space up
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In order to start a business, what is initially necessary?
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if it is your 1st business, a loan may be difficult to get
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What if its your 1st business, how will you get the money?
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you must apply for a business license
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what happens when you have the money to start the business?
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make sure the space you rented is able to be used for business purposes and a site permit
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what is necessary for a business in terms of space?
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easier to open/close, few regulations, freedom/control, keeping profit
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Advantages of a sole proprietorship…
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(a) Advtge of sole proprietorship: easier to open/close
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Advtge of sole proprietorship: start up costs involving the licensing, name registration, when you see fit you can shut the business down and pay off any debt
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(b) Advtge of sole proprietorship: few regulations
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Advtge of sole proprietorship: labor laws and a few gov’t regulations apply to sole proprietorships
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(c) Advtge of sole proprietorship: freedom/control
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Advtge of sole proprietorship: as the single owner, you’re also the boss and decision maker
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(d) Advtge of sole proprietorship: keeping profit
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Advtge of sole proprietorship: as a sole proprietor, keep all the profit
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limited funds, limited life, unlimited liability
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Dsadvtge of sole proprietorship…
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(a) Dsadvtge of sole proprietorship: limited funds
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Dsadvtge of sole proprietorship: even through the start up costs are low, the 1 owner, esp. if its their 1st business, usually has to borrow money. competitive wages and providing benefits are tough for sole proprietors.
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(b) Dsadvtge of sole proprietorship: limited life
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Dsadvtge of sole proprietorship: if the owner dies, retires, or leaves the business, it is usually done
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(c) Dsadvtge of sole proprietorship: unlimited liability
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Dsadvtge of sole proprietorship: if you’re the single owner, you have full responsibility for running the business and paying al the costs
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2/+ ppl agree to take on all the responsibilities of the business and profit/loss
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what is a partnership?
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can exist in all parts of the business world, but tend to be found more prevalent in the prof financial industries
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where do partnerships exist?
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general partnership, limited partnership, limited liability partnership
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what are the 3 types of partnerships
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exists when each partner has equal responsibility & liability
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what is a general partnership?
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sharing all debts and losses even if it wasn’t your fault
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what is the trade-off to general partnerships?
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exists when 1 partner handles the day-day operations of the business vs. their partner is not involved
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what is a limited partnership?
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only liable for their investment and not the rest of the business’ debt
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in a limited partnership, what is the partner who is not involved in the day-day operations liable for?
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all of the partners have a limited partnership and are only responsible for their own debt and no one else’s
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what is a limited liability partnership?
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easy to open/close, few regulations, access to resources, joint decision making, specialization
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Advtge of partnership…
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(b) Advtge of partnership: few regulations
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Advtge of partnership: most states follow uniform partnership act, which sets the laws and outline of all partnerships->Uniform Partnership Act
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(c) Advtge of partnership: access to resources
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Advtge of partnership: partners create a larger pool of funds and having +$ allows you to make joint decision making
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(e) Advtge of partnership: specialization
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Advtge of partnership: each partner has specific skills
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unlimited liability, potential of conflicts, limited life
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Dsadvtge of partnership…
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(a) Dsadvtge of partnership: unlimited liability
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Dsadvtge of partnership: like a sole proprietorship, the partners are responsible for all->profits/loss included
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when a comp is owned by many individuals who acquire their ownership thru the purchase of stock, the comp is a corp
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what is a corp?
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when sole proprietorships/partnerships want to go corp, they make a request to their state gov’t and if agreed, they’re issues a corp charter
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what is necessary in order to go corp?
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comps that go corp do so because it reduces personal liability & makes you only responsible for the investment amount you made when you purchased stock
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why do comps go corp?
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when a corp sells their stock to anyone, their comp is public
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when is a comp public?
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when they control/offer it to why they want
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when is a comp private?
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20%
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what % of US coms do corps make up?
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they provide most goods, services, and have most employees
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what do corps provide?
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easier access to resources, prof managers, limited liability, unlimited life
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advtge of going corporate…
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(a) advtge of going corporate: easier access to resources
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advtge of going corporate: if a comp need to raise $, they could do this easily by selling more stock
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(b) advtge of going corporate: prof manager
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advtge of going corporate: diff offices/departments created by board of directors allows corps to hire experts do these jobs
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(c) advtge of going corporate: limited liability
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advtge of going corporate: only liable for stocks you purchases
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(d) advtge of going corporate: unlimited life
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advtge of going corporate: if a board of director dies/leaves the business, the remaining stockholders still run the business
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start up costs/effort, heavy regulation, double taxations, loss of control
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Dsadvtge of going corporate..
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(a) Dsadvtge of going corporate: start up costs/effort
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Dsadvtge of going corporate: trying to become corp is a long/tough process w/ a lot of expenses, requiring a lawyer
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(b) Dsadvtge of going corporate: heavy regulation
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Dsadvtge of going corporate: every corp must provide the SCC annual report, quarterly report for every stockholder, yearly stockholder meetings
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(c) Dsadvtge of going corporate: double taxations
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Dsadvtge of going corporate: corp officers are taxed on their products and taxed on their dividends of their stock
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(d) Dsadvtge of going corporate: loss of control
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Dsadvtge of going corporate: as an owner, you have complete say; as a shareholder, your voice only goes as far as your % of shares you own
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when 2 comps join together that offer the same goods/services, the merger is considered horizontal/its vertical when 2 comps merger together and dont offer same good/service
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what is consolidation?
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to raise efficiency, gain new identity, keep rivals out, diversify
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what is business consolidation?
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joins comps w/ same/similar product
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what is a horizontal merger?
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joins comps w/ diff steps of production, marketing
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what is a vertical merger?
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comps w/ unrelated products
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what is a conglomerate?
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has branches in several countries
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what is a multinat corp?
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’05, reebok & adidas made horizontal merger -meant to cut production, distribute costs by combining operations
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how is reebok and adidas an ex: of h. merger?
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’90s, shell & texco made v merger -shell had more refineries, texco has more gas stations for distribution
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how is shell & texco an ex: of v. merger?
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diversified businesses protect parent company
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what is the theory of conglomerate?
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to manage unrelated comps
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what is the practice of conglomerate?
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’60s, gulf & western in communication, clothes, mines food -eventually sold all except entertainment, publishing; became viacom
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how is gulf & western an ex: of an conglomerate?
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multinational, or transnational, corporations raise globalization
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what falls under a multinat corp?
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provide jobs, products, spread tech, pay taxes -help raise standard of living of poor countries
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what are they the benefits of multinat corp?
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pollution, long work hrs, unsafe conditions
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what problems will factories face w/ lax regulations?
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almost independent business
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what is a franchise?
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(a) training in running the business
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What does a franchise provide? (a)
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(b) high level of independence
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What does a franchise provide? (b)
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(c) product and material @ low cost
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What does a franchise provide? (c)
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(d) franchiser pays for national and regional advertising
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What does a franchise provide? (d)
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invest own money -must share some of the profits w/ franchiser -does not have full control of business -must buy only franchiser’s materials -must sell only franchiser’s products
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what must a franchise do to start the business?
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benefiting society -include charities, prof associations, labor unions, museums
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what is the purpose of nonprofits?
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receive gov’t charter, have unlimited life
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what does a nonprofit nee to receive?
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thru grants, membership fees -sell services, products
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how do nonprofits raise funds?
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prof organizations -prof associations, labor unions
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what can nonprofits also be?
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partnership, corp
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In what business(es) does limited liability exist?
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sole proprietorship, partnership
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In what business(es) does easy to enter/exit exist?
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corp
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In what business(es) does unlimited life exist?
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partnership, corp
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In what business(es) does access to resources exist?
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easy to open or close, few regulations, freedom and control, owner keeps profits
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what are the main advantages of a sole proprietorship?
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*limited funds, limited life, unlimited liability
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what are the main disadvantages of a sole proprietorship?
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the sole owner of the business gets to keep all the profits the business earns and the sole owner still has to pay all its debts
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who gets the profits from a sole proprietorship? who has to pay all the debts?
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they typical requirements consist of funding a license, site permit, legally registered name
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what steps do new sole proprietorships usually need to take before they can open?
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easy to open and close, few regulations, access to resources, joint decision making, specialization
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what are the main advantages of partnership?
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limited life, potential for disagreements among partners, liability issues depending on type of partnership
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what are the main disadvantages of a partnership?
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a greater pool of funds makes it easier for partnerships to attract and keep workers
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in what ways do the increased resources of a partnership help a business?
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either a legal agreement among the parties or the uniform partnership
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what determines how partners will divide responsibilities, profits, and debts?
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limited liability for the owners, the ability to hire expert managers and decision makers, unlimited life
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what are the main advantages of a corp?
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start-up costs and effort, heavy regulation, double taxation, loss of control
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what are the main disadvantages of a corp?
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corps raise money through stocks and issuing bonds
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how do corps make money?
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large corp with branches in several countries
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what is multinational corp?
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level of independence, provides good training in running the business, provides proven products as well as other materials, decor which is all for a low cost. Also pay for national/regional advertising to attract customers
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what are the main advantages of a franchise?
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cost of initial investment, share of profits to franchise, con’t expansion of product line
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what are the main disadvantages of a franchise?
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they reduce prices by eliminating price from the cost of product or services
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how do consumers and service cooperatives save their members money?
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what are some purposes of nonprofit organizations?
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serving the community or serving a community of professionals
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the goal of a business organization is to make a profit and they do this by producing goods or providing services
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what is the goal of a business organization and how do they reach their goals?
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She offered women unique rewards for their business success. She turned her agitation about loosing a position to a man due to her gender, she, her son and her 9 sales people formed an outline for sales. Her book to help women navigate the business world transitioned into 2 lists; one about women’s problem areas VS their strengths. Analyzing these lists, she realized she had formulated a business plan for a new company
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how did mary kay ash create her successful sole proprietorship?
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when a company is owned by many individuals who acquire their ownership through the purchase of stock
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how does a corporation work and how do people benefit from its make up?
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when a corp. controls and offers it to who they want
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how can a corp control its stock?
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a cooperative operates for the shared benefit of the owners who are also its customers. when people who need the same goods/services bond together and act as a business, they can offer low prices by reducing or eliminating profits
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how does a cooperative work and how do both the owner and consumer benefit?

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