Intro to Business Chapter 4 – Flashcards
Unlock all answers in this set
Unlock answersquestion
A business owned and usually owned by one person, simplest form of business ownership, most popular form of business ownership, many large businesses began as small struggling sole proprietorship anyone can you could start today, make up 72% of businesses, 4% revenue
answer
Define Proprietorship
question
1. Ease of start up and closure 2. Pride of ownership 3. Gain all profit 4. No special taxes 5. Flexibility of being your own boss all income is taxed at personal income
answer
Advantages of Proprietorship
question
1. Unlimited liability (can sue you for more than you invested) 2. Lack of continuity 3. Lack of money 4. Limited management skills (one man hat shoe, hiring, firing, production etc.) 5. Difficulty in hiring employes
answer
Disadvantages of Proprietorship
question
A partnership is a voluntary association of two or more persons to act as co-owners of a business for profit.
answer
Define Partnership
question
A general partnership is a business co-owned by two or more general partners who are liable for everything the business does. (If your wife spends money on a credit card you are liable for it, similar to a partnership)
answer
Define General Partnership
question
A limited partnership is a business co-owned by one or more general partners who manage the business and limited partners who contribute capital.
answer
Define Limited Partnership
question
1. Who will make final decisions 2. What each partner's duties will be 3. How much each partner will invest 4. How much profit or loss each partner receives or is responsible for 5. How the partnership can be dissolved
answer
The Partnership Agreement
question
Ease of start-up Availability of capital and credit Personal interest Combined business skills and knowledge Retention of profits No special taxes
answer
Advantages of Partnership
question
Unlimited liability Management disagreements Lack of continuity Frozen investment
answer
Disadvantage of Partnership
question
A corporation is an artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts. Exists only on paper Approx. 6 million in the U.S. 19% of all businesses 82% of sales revenue
answer
Define Corporation
question
The shares of ownership of a corporation
answer
Define Stock
question
A person who owns a corporation's stock
answer
Define Stockholder
question
Stock is owned by relatively few people and not sold to public.
answer
Closed Corporation
question
Stock is bought and sold on security exchanges and can be bought by anyone.
answer
Open Corporation
question
Sole proprietorship -> Partnership -> Corporation
answer
Transitioning Procter & Gamble
question
Experts suggest you consult a lawyer when deciding to incorporate and throughout the process.
answer
Forming a Corporation: Get Legal Advice
question
A business can incorporate in any state it chooses. The decision is usually based on cost and the advantages anddisadvantages of each state'scorporate laws and tax structure.
answer
Forming a Corporation:Where to Incorporate
question
A domestic corporation is a corporation in the statein which it is incorporated.
answer
domestic corporation
question
A foreign corporation is a corporation in any state in which it does business except the one in which it is incorporated.
answer
foreign corporation
question
An is a corporation charteralien corporation ed by a foreign government and conducting business in the U.S.
answer
alien corporation
question
Articles of incorporation: a contract between the corporation and the state in which the state recognizes the formation of the artificial person that is the corporation Firm's name and address Incorporators' names and addresses Purpose of the corporation Maximum amount of stock and types of stock to be issued Rights and privileges of stockholders Length of time the corporation is to exist
answer
Forming a Corporation:The Corporate Charter
question
Stock owned by individuals or firms who may vote on corporate matters but whose claims on profit and assets are subordinate to the claims of others
answer
Common Stock
question
Stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners
answer
Preferred Stock
question
A distribution of earnings to the stockholders of a corporation (a company giving you a financial income)
answer
Dividend
question
A legal form listing issues to be decided at a stockholders' meeting and enabling stockholders to transfer their voting rights to some other individual or individuals
answer
Proxy
question
The organizational meeting is the last step in forming a corporation. The incorporators and original stockholders meet to adopt corporate by-laws and elect their first board of directors. Board members are directly responsible to stockholders for how they operate the firm. Board members are directly responsible to stockholders for how they operate the firm.
answer
Forming a Corporation: Organizational Meeting
question
The top governing body of a corporation, the members of which are elected by the stockholders Responsible for setting corporate goals, developing strategic plans to meet those goals, and the firm's overall operation Responsible for setting corporate goals, developing strategic plans to meet those goals, and the firm's overall operation Outside directors: experienced managers or entrepreneurs from outside the corporation who have specific talents Inside directors: top managers from within the corporation Inside directors: top managers from within the corporation
answer
Corporate Structure: Board of Directors
question
The chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board Responsible for implementing the chosen strategy and directing the work of the corporation, periodically reporting results to the board and stockholders
answer
Corporate Structure: Corporate Officers
question
Advantages Limited liability - each owner's financial liability is limited to the amount of money that he or she has paid for stock Ease of raising capital Ease of transfer of ownership Perpetual life Specialized management
answer
Corporation Advantages
question
Disadvantages Difficulty and expense of formation Government regulation and increased paperwork Conflict within the corporation Double taxation Lack of secrecy
answer
Corporation Disadvantages
question
A corporation that is taxed as if it were a partnership (income taxed as personal income of stockholders) Advantages Avoids double taxation of a corporation Retains the corporation's legal benefit of limited liability S-corporation criteria No more than 100 stockholders allowed Stockholders must be individuals, estates, or certain trusts There can be only one class of outstanding stock The firm must be a domestic corporation No partnerships, corporations, or nonresident-alien stockholders All stockholders must agree to form an S-corporation
answer
Special Types of Business Ownership:S-Corporations-objective 6
question
Form of business ownership combining the benefits of a corporation and partnership but avoids some of restrictions and disadvantages Advantages Avoids double taxation of a corporation Retains the corporation's legal benefit of limited liability Provides more management flexibility Difference between LLC and S-corporation LLCs not restricted to 100 stockholders LLCs have fewer restrictions on who can be a stockholder
answer
Special Types of Business Ownership:Limited-liability Company (LLC)
question
Not-for-profit corporations are organized to provide social, educational, religious, or other services, rather than to earn a profit. Charities, museums, private schools, colleges, and charitable organizations are organized as not-for-profits primarily to ensure limited liability. Must meet specific IRS guidelines to obtain tax-exempt status.
answer
Special Types of Business Ownership:Not-for-profit Corporations
question
Joint ventures are agreements between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time. Examples: Walmart and Bharti
answer
Joint ventures
question
Syndicates are temporary associations of individuals or firms organized to perform a specific task that requires a large amount of capital. Most commonly used to underwrite large insurance policies, loans, and investments.
answer
Syndicates
question
Merger: the purchase of one corporation by another; essentially the same as an acquisition
answer
Merger
question
Hostile takeover: a situation in which the management and board of directors of the firm targeted for acquisition disapprove of the merger
answer
Hostile takeover:
question
Tender offer: an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares
answer
Tender offer
question
Proxy fight: a technique used to gather enough stockholder votes to control a targeted company
answer
Proxy fight
question
Merger between firms that make and sell similar products Subject to approval by federal agencies to protect competition
answer
Horizontal mergers
question
Merger between firms that operate at different but related levels of production and marketing a product Usually one firm is a supplier or customer of the other
answer
Vertical mergers
question
Merger between firms in completely different industries
answer
Conglomerate mergers
question
Pro Takeover Can install a new top-management team Forces the company to focus on one main business Can reduce expenses Makes company more profitable
answer
Pro Takeover
question
Against Takeover Does not enhance profitability or productivity Only profits investment bankers, brokerage firms, and takeover "artists"
answer
Against Takeover
question
Mergers after the economic crisis will be the result of cash-rich companies looking to enhance their position in the marketplace. There will be more mergers involving companies or investors from other countries. Future mergers and acquisitions will be driven by solid business logic and the desire to compete internationally.
answer
Experts predict...
question
sole proprietorships
answer
Glen owns an operates a large hardware store in Missouri that employs about 50 people. He delegates some of the decision making to two managers, but he remains the only owner. Glens business is organized as a
question
sole proprietorships
answer
in the United States, approximately 71 percent of all businesses are
question
Limited partner
answer
The partner who can lose only what he or she has invested in a business is the
question
dividend
answer
a distribution of earnings to the stockholders of a corporation is a(n)
question
true
answer
the weakness of one partner may be offset by other partner's strength true or false
question
corport charter
answer
A legal document that describes the purpose of a corporation
question
partnership
answer
it is an association of two or more business owners
question
corporations
answer
A business entity or artifical bean with most of the legal rights of a person
question
Sole Propritorship
answer
this type of ownership is the simplest to start
question
limited partner
answer
a person who invests money in a business but has no management responsibility or liability loses beyond investment amount
question
the top governing body of a corporation, the members of which are elected by the stockholders
answer
board of directors
question
a corporation whose stock is owned by relatively few people and is not sold to the general public
answer
closed corporation
question
stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others
answer
common stock
question
the chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board of directors
answer
corporate officers
question
an artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts
answer
corporation
question
a distribution of earnings to the stockholders of a corporation
answer
dividend
question
a person who assumes full or shared responsibility for operating a business
answer
general partner
question
a situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger
answer
hostile takeover
question
an agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time
answer
joint venture
question
a feature of corporate ownership that limits each owner's financial liability to the amount of money that he or she has paid for the corporation's stock
answer
limited liability
question
a person who invests money in a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership
answer
limited partner
question
a form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership
answer
limited-liability company (LLC)
question
the purchase of one corporation by another
answer
merger
question
a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit
answer
not-for-profit corporation
question
a corporation whose stock can be bought and sold by any individual
answer
open corporation
question
a voluntary association of two or more persons to act as co-owners of a business for profit
answer
partnership
question
an agreement listing and explaining the terms of the partnership; written is preferable to oral
answer
Articles of Partnership
question
stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners
answer
preferred stock
question
a legal form listing issues to be decided at a stockholders' meeting and enabling stockholders to transfer their voting rights to some other individual or individuals
answer
proxy
question
a technique used to gather enough stockholder votes to control a targeted company
answer
proxy fight
question
a corporation that is taxed as though it were a partnership
answer
S-corporation
question
a business that is owned (and usually operated) by one person
answer
sole proprietorship
question
the shares of ownership of a corporation
answer
stock
question
a person who owns a corporation's stock
answer
stockholder
question
a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital
answer
syndicate
question
an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares
answer
tender offer
question
a legal concept that holds a business owner personally responsible for all the debts of the business (liable for everything
answer
unlimited liability
question
Corporation Easy: 1. Protecting against liability for debts 2. Raising money 3. Ownership Transfer 4. Preserving continuity
answer
Sole Proprietorship Difficutly 1. Protecting against liability for debts 2. Ownership transfer 3. ressing continuity
question
A corporation that is taxed as if it were a partnership (income taxed as personal income of stockholders) Advantages: 1. Avoids double taxation of a corporation 2. Retains the corporation's legal benefit of limited liability 1. S-corporation criteria 2.No more than 100 stockholders allowed 3. Stockholders must be individuals, estates, or certain trusts 4. There can be only one class of outstanding stock 5. The firm must be a domestic corporation 6. No partnerships, corporations, or nonresident-alien stockholders 7. All stockholders must agree to form an S-corporation.
answer
S corporation
question
Are organized to provide social, educational, religious, or other services, rather than to earn a profit Charities, museums, private schools, colleges, and charitable organizations are organized as not for profit primarily to ensure limited liability Must meet specific IRS guidelines to obtain tax-exempt status.
answer
Not for profit corporations
question
Merger: the purchase of one corporation by another; essentially the same as an acquisition Hostile takeover: a situation in which the management and board of directors of the firm targeted for acquisition disapprove of the merger Tender offer: an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares Proxy fight: a technique used to gather enough stockholder votes to control a targeted company
answer
Growth through Mergers and Acquisitions
question
Sole proprietorship, partnership, corporation
answer
What are the traditional three legal forms of business?
question
A sole proprietorship x2, 99.7%
answer
What is the simplest form of ownership? What form has the most number of businesses? What percent?
question
you must report all business income or losses on your personal income tax return; the business itself is not taxed separately.
answer
How is a sole proprietorship taxed?
question
the state of being responsible for something, especially by law. DEFINITION OF 'UNLIMITED LIABILITY' A type of business where owners share joint and several responsibility for the entire amount of debt and other liabilities amassed by the business. Unlimited liability is not capped at a maximum amount and exists regardless of the amount of investment each owner has personally made.
answer
What is liability? What does it mean to have unlimited liability?
question
the state of being a partner or partners.
answer
What is a partnership?
question
general partnership (GP), limited partnership (LP) and limited liability partnership (LLP)
answer
What are two types of partnerships?
question
You must forfeit your right to be involved in running the business
answer
How can you limit your liability in a partnership?
question
Articles of partnership is a voluntary contract between two or among more than two persons to place their capital, labor, and skills, and corporation in business with the understanding that there will be a sharing of the profits and losses between/among partners.
answer
What are articles of partnership?
question
a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.
answer
What is a corporation?
question
Corporation
answer
Large companies usually choose what type of legal form of business?
question
A "closed corporation" is usually called "private corporation." All of the shares are closely held and are not for sale to the public. This is when a family or another corporation completely owns all the shares of the closed corporations. An "open corporation" is one with publicly traded stocks. That means anyone can buy voting shares of the corporation from a promoter, over-the-counter, or on the open market.
answer
What is the difference between an open and closed corporation?
question
A shareholder or stockholder is an individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation. Shareholders are the owners of a limited company. They buy shares which represent part ownership of a company.
answer
What is a shareholder of a company?
question
A set of formal documents filed with a government body to legally document the creation of a corporation. Articles of incorporation must contain pertinent information such as the firm's name, street address, agent for service of process, and the amount and type of stock to be issued A corporation charter, also known as articles of incorporation, is the legal instrument used to establish a corporation, according to InvestorWords. Although some variations in the laws associated with creating corporations exist from one state to another, the general requirements for a corporation charter basically are the same in each U.S. jurisdiction.
answer
What are articles of incorporation? How do you get a corporate charter?
question
voting power on majors issues, owning a portion of the company, the right to transfer ownership, entitlement to dividends, opportunity to inspect, corporate books and records, right to sue for wrongful acts
answer
What are some rights of stockholders?
question
the authority to represent someone else, especially in voting.
answer
What is a proxy?
question
the board of directors' key purpose is to ensure the company's prosperity by collectively directing the company's affairs, whilst meeting the appropriate interests of its shareholders and stakeholders.
answer
What is the purpose of the board of directors?
question
Double taxation
answer
What is it called when profits are taxed and dividends are taxed?
question
Limited liability is where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership. If a company with limited liability is sued, then the plaintiffs are suing the company, not its owners or investors.
answer
What is limited liability?
question
the characteristic of most corporations meaning that they are can continue indefinitely, until dissolved by either the corporation itself or the state (=dissolution). The life and continuation of a business will not be affected by the withdrawal or death of one of the owners Perpetual existence can be beneficial for companies because they can last beyond their founders. (Corporation lasts forever)
answer
What is perpetual life?
question
a commercial enterprise undertaken jointly by two or more parties that otherwise retain their distinct identities.
answer
What is a joint venture?
question
a group of individuals or organizations combined to promote some common interest.
answer
What is a syndicate?
question
Horizontal mergers involve companies that offer the same products or services to the same kinds of customers. If your business mows lawns, for example, and you combine with another lawn-care company in your town, that's a horizontal merger. A vertical merger combines two companies that are involved in producing the same goods or services but at different stages of production. Say you own a manufacturing company that makes items out of plastic. Merging with a company that makes raw plastics would be a vertical merger. Concentric mergers, also called congeneric mergers, occur between companies within an industry that serve the same customers but don't offer them the same products or services. If you owned a catering company, for example, and you merged with a business that rents tables, chairs, event tents and party equipment, that would be a concentric merger. Both companies appeal to customers who have events to plan, but not in the same way
answer
explain the difference between the following types of mergers: Horizontal merger - Vertical merger - Conglomerate merger
