Chapter 6 Business Foundations Final – Flashcards
Unlock all answers in this set
Unlock answersquestion
1. Sole Proprietorship 2. Partnership 3. Corporation 4. Limited Liability Company (LLC)
answer
What are the four firms associated with starting a business?
question
A form of business ownership with a single owner who usually actively manages the company
answer
Sole Proprietorship?
question
A voluntary agreement under which two or more people act as co-owners of a business for profit
answer
Partnership?
question
A partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm
answer
General Partnership?
question
A form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners
answer
Corporation?
question
The document filed with a state government to establish the existence of a new corporation
answer
Articles of Incorporation?
question
When owners are not personally liable for claims against their firm. Owners ma lose their investment in the company, but their other personal assets are protected
answer
Limited Liability?
question
A form of business ownership that offers both limited liability to its owners and flexible tax treatment
answer
Limited Liability Company (LLC)?
question
They can elect to have their business taxed either as a corporation or a partnership
answer
What is unique about an L.L.C.?
question
- Wyoming - Florida
answer
What was the first state to allow LLC? The second?
question
Sole Proprietorship
answer
What is the most common type of business by form of ownership in the United States?
question
Corporations
answer
Which form of ownership has the greatest combined Net Income?
question
Ease of formation, retention of control, pride of ownership, retention of profits, and possible tax advantage (no double taxation)
answer
What are some of the advantages of a Sole Proprietorship?
question
Limited financial resources, unlimited liability, ability to attract and maintain talented employees, heavy workload and responsibilities, and lack of permanence
answer
What are some of the disadvantages of a Sole Proprietorship?
question
Ability to pool financial resources, share responsibilities, ease of formation, and tax advantages
answer
What are some advantages of a General Partnership?
question
Unlimited liability, potential for disagreements, lack of continuity, and difficulty in withdrawing
answer
What are some of the disadvantages of General Partnerships?
question
A partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability
answer
Limited Partnership?
question
A form of partnership in which all partners have the right to participate in management and have limited liability for company debts
answer
Limited Liability Partnerships (LLP)?
question
Full Shield: partners have limited liability for all claims against their company, except those resulting from their own negligence Partial Shield: each partner has limited liability for the negligence of other partners, but still has unlimited liability for any other debts
answer
In an LLP, what is the difference between full shield protection and partial shield protection?
question
General, limited, and limited liability
answer
What are the three types of partnerships?
question
The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners (stockholders)
answer
C Corporation?
question
S corporations, statutory close (or closed) corporations, and nonprofit corporations
answer
Not including a C Corporation, what are the three other types of corporations?
question
The basic rules governing how a corporation is organized and how it conducts its business
answer
Corporate Bylaws?
question
Delaware
answer
What state has been very successful in attracting corporations?
question
An owner of a corporation
answer
Stockholders?
question
Common stockholders have the right to vote in meetings, while preferred stockholders do not.
answer
Common stock vs preferred stock?
question
An organization that pools contributions from investors, clients, or depositors and uses these funds to buy stock and other securities
answer
Institutional Investors?
question
The individuals who are elected by stockholders of a corporation to represent their interests
answer
Board of Directors?
question
The Board of Directors
answer
In a corporation, who establishes the mission and sets its broad objectives?
question
CEO, appointed by the board of directors
answer
Who manages a corporation on a daily basis, and how are they appointed?
question
Limited liability, permanence, ease of transfer of ownership, ability to raise large amounts of capital, and ability to make use of specialized management
answer
Advantages of a C Corporation?
question
Expense and complexity of formation, complications when operating in more than one state, double taxation and additional taxes, more paperwork, regulation, and less secrecy, and possible conflicts of interest.
answer
Disadvantage of a C Corporation?
question
A form of corporation that avoids double taxation by having its income taxed as if it were a partnership
answer
S Corporation?
question
A corporation with a limited number of owners that operates under simpler, less formal rules that a C Corporation
answer
Statutory Close (or closed) Corporation?
question
A corporation that does not seek to earn a profit and differs in several fundamental respects from C corporations
answer
Nonprofit Corporation?
question
No double taxation, and limited liability
answer
Advantages of an S Corporation?
question
No more than 100 stockholders, and each stockholder must be a U.S. citizen
answer
Disadvantages of an S Corporation?
question
Simpler arrangements (no board of directors or annual stockholders' meetings), and owners can participate in management while still having limited liability
answer
Advantages of a Statutory Close (or closed) Corporation?
question
Limited number of stockholders (no more than 50), can't share their shares to the public without first offering shares to the existing owners, and not all states allow this formation
answer
Disadvantages of a Statutory Close (or closed) Corporation?
question
Except from federal and state taxes, limited liability, and tax deductions
answer
Advantages of a Nonprofit Corporation?
question
Must keep accurate records, and it cannot have stockholders, distribute dividends, or contribute funds to a political campaign
answer
Disadvantages of a Nonprofit Corporation?
question
A corporate restructuring in which one firm buys another
answer
Acquisition?
question
A corporate restructuring that occurs when two formerly independent business entities combine to form a new organization
answer
Merger?
question
The transfer of total or partial ownership of some of a firm's operations to investors or to another company
answer
Divestiture?
question
To rid themselves of a part of their company that no longer fits well with their strategic plan
answer
Why would a firm use a divestiture?
question
Spin-Off: when a company issues stock in one of its divisions, and sets it up as a separate company, thus eliminating a division that no longer fits (doesn't generate any additional funds for the firm*) and distributing the new stock to its stockholders Carve-Out: same concept as a Spin-Off, however it sells the stock to outside investors, thus raising additional financial capital
answer
What is a spin-off divestiture? Carve-out?
question
A curve-out sells its stocks to outside investors, and generates financial capital, meanwhile a spin-off does not generate financial capital and its stock is distributed to its same stockholders
answer
What is the difference between a spin-off divestiture and a curve-out divestiture?
question
A combination of two firms that are in the same industry
answer
Horizontal Merger?
question
A combination of firms at different stages in the production of a good or service
answer
Vertical Merger?
question
A combination of two firms that are in unrelated industries
answer
Conglomerate Merger?
question
Increase size and market power within the industry, and improve efficiency by eliminating duplication of facilities and personnel [United Airlines acquisition of Continental Airlines]
answer
Common objective in a Horizontal Merger? [EXAMPLE]
question
Tighter integration of production and increased control over the supply of crucial inputs. [Google acquisition of Motorola, which used Google's Android operating system and Motorola phones]
answer
Common objective in a Vertical Merger? [EXAMPLE]
question
Reduce risk by making firm less vulnerable to adverse conditions in any single market [Berkshire Hathaway adding Iscar, a company that makes cutting tools to diversify its investment, thus making it less prone to market risks and trends]
answer
Common objective in a Conglomerate Merger? [EXAMPLE]
question
Limited liability, tax pass-through (taxed only as income of the owners), simplicity and flexibility in management, and flexible ownership
answer
Advantages of an LLC?
question
Ability to have their company treated as either a corporation, partnership, or even a sole proprietorship (if owned by a single person)
answer
What is a unique aspect that an LLC have that the other business forms do not?
question
Complexity of formation, annual franchise tax, foreign status in other states, limit on types of firms that can form, and differences in state laws
answer
Disadvantages of an LLC?
question
A licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, and other property in exchange for monetary payments and other considerations
answer
Franchise?
question
The business entity in a franchise relationships that allows others to operate its business using resources it supplies in exchange for money and other considerations
answer
Franchisor?
question
The party in a franchise relationship that pays for the right to use resources supplied by the franchisor
answer
Franchisee?
question
Distributorships and business format franchises
answer
What are the two most popular types of franchise arrangements?
question
A type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it
answer
Distributorship?
question
A broad franchise agreement in which the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor
answer
Business Format Franchise?
question
An expansion into foreign markets; they are less intense and the markets are less saturated than in the US
answer
What is one of the biggest trends in franchising, and why?
question
30%
answer
What percent of franchises are owned by woman?
question
National Minority Franchising Initiative (NMFI), and MinotirtyFran
answer
Since minorities in franchises have been relatively low, what two major initiatives have helped boost this in recent years?
question
Less risk, training and support, brand recognition, and easier access to funding
answer
Advantages of Franchising?
question
Costs, lack of control, negative halo effect, growth challenges, restriction on sales, and poor execution
answer
Disadvantages of Franchising?
question
The contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties
answer
Franchise Agreement?
question
Terms and conditions, fees and payments, training and support, specific operational requirements, conflict resolution, and assigned territory
answer
What are the key items (7 total) covered in a franchising agreement?
question
- A detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least fourteen calender days before the franchise agreement is signed. - Federal Trade Commission (FTC)
answer
What is the Franchise Disclosure Document (FDD) and who requires this document to be presented?
question
14 calender days
answer
Under FTC rules, the franchisor must give the franchisee at least how many days to review the FDD before the franchise agreement can be signed?
