Types of Business Ownerships

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1. 
What is a sole proprietorship? Describe the advantages and disadvantages of running a sole proprietorship.
 

A sole proprietorship is a form of ownership that involves one individual.

*Advantages:

-It is the easiest kind of business to start (or close).

-Being your own boss: Working for yourself is exciting.

-Retention of company profits: You don't have to share profits with anyone.

-No special taxes: Profits of the business are taxed as the personal income of the owner.

*Disadvantages:

-The initial cost may be too large.

-Funds available are limited to the funds that the sole owner can gather.

-Management difficutlies: Many owners are not skilled at management or with details such as accounting.

-Unlimited liability: The responsibility of business owners for all of the debts of the business is the major disadvantage.

-Overwhelming time commitment: The owner has no one with whom to share the burden.

-Limited life span and growth potential: If the sole proprietor dies or leaves, the business ends.

(pages 144-146)

 
2. 
Define the four types of partnerships available. Discuss the benefits and/or drawbacks of partnerships.
 

*A general partnership is a partnership in which all owners share in operating the business and in assuming liability for the business' debts.

*A limited partnership is a partnership with one or more general partners and one or more limited partners.

*Master limited partnership (MLP) is structured much like a corporation in that it acts like a corporation and is traded on the stock exhcanges like a corporation, but taxed like a partnership and thus avoids the corporate income tax.

*A limited liability partnership (LLP) is a partnership that limits partners' risk of losing their personal assets to only their own acts and omissions and the acts and omissions of the people under their supervision.

ADVANTAGES

*More financial resources

*Pooled/complimentary knowledge

DISADVANTAGES

*Unlimited liability

*Each general partner is liable for the debts of the firm

*You are also liable for your partners' mistakes

*Conflicts among partners

*Difficult to terminate (pages 1446-148)

 
3. 
Identify and describe the three types of corporations.
 

C-Corporation-A form of business ownership that provides limited liability. A conventional (C) corporation is a state-chartered legal entity with authority to act and have liability separate from its owners. The corporation's owners (stockholders) are not liable for the debts of the corporation beyond their investment. The corporate form of ownership also allows many people to share in the ownership of a business without working there.

S Corporations-A type of legal entity in which the biggest advantage is that it is taxed like a sole proprietorship. S corporations must have no more than 100 shareholders, have shareholders who are individuals or estates and are citizens or permanent residents of the U.S., have only one class of outstanding stock, and not have more than 25% of income derived from passive sources (rents, royalties, interest, etc)

Limited Liability Companies (LLC)-A company similar to an S corporation but without the special eligibility requirements. Advantages of LLCs include limited liability, personal assets are protected; in addition, LLCs can choose to be taxed as partnerships or as corporations. (pages 148-150)

 
4. 
What are two alternative types of ownership? List some advantages of these other conventional business types.
 

Other types of business ownership include franchises and cooperatives. Franchising is an alternative to starting a business from scratch.

*Advantages of franchises include the following:

-Greater chance of succeeding

-Marketing and management assistance

-The franchisor (the person who owns the rights to the franchise) also provides intesive training.

-Many franchises also offer financial assistance, such as loans, to franchisees.

-Lower failure rates

*Disadvantages

-Large start-up costs;

-The franchisor often demands a large share of the profits, or royalties, based on sales, not profit;

-Franchsiros have very thight restrictions on all aspects of the operation;

-The actions of other franchisees have a coattail effect, an impact on the franchise's future growth and profitability.

Openeing a cooperativie is another possibility. A cooperative is a business owned and controlled by the people who use it-producers, consumers, or workers with similar needs who pool their resources for mutual gain. Cooperatives do not pay the same kind of taxes that corporations do, givig them an advantage. (pages 151-154, 156-157)

 
5. 
Compare and contrast merger and acquisition and defin buyout. Describe the methods of corporate expansion, inclduing mergers and buyouts.
 

A merger is the result of two firms forming one company. An acquisition is one company's purchase of the property and obligations of another company. There are three major types of mergers:

*Vertical merger-The joining of two companies involved in different stages of related businesses.

*Horizontal merger-Joins ttwo firms in the same industry and allows them to diversify or expand their products.

*Conglomerate merger-Unites firms in completely unrelated industries.

A buyout is when employees or managers attempt to take over ownership of the company for which they work. There are two basic types of buyouts:

*A leveraged buyout (LBO)-An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing. The term "leveraged" means that the funds for the purchase are borrowed.

*Another term for this is management buyout-When employees of the company get together to purchase the business. This might be leveraged or accomplished through available cash. (pages 157-159)

 
6. 
What are five primary characteristics of entrepreneurs?
 

Entrepreneurs share five common characteristics:

*Self-directed and self-disciplined

*Self-nurturing, believing in your own ideas

*Action-oriented, having a desire to build the dream into reality

*Highly energetic, willing to work long hours to succeeed

*Tolerant of uncertainty, the ability to take calculated risks (pages 139-140)

 
7. 
What are the four primary reasons that people choose to take the risk of becoming an entrepreneur?
 

*Opportunity to share in teh American dream.

*Profit: The riches person in the U.S. is Bill Gates, the entrepreneur who founded Microsoft.

*Independence: Many entrepreneurs don't enjoy working for someone else and have found more self-satisfaction in starting their own businesses.

*Challenges: Some believe that entrepreneurs are excitment junkies who flourish on taking risks; others believe that entrepreneurs take moderate, calculated risks. In general, entrepreneurs seek achievement more than power. (pages 141-142)

 
8. 
Discuss the business plan; what is it? How can it help a prospective small business owner, and what are the most important consierations when developing one?
 

A business plan is a detailed written statemnt that describes the nature of the business, the target market, the advantages the business will have in relation to competition, and the resources and qualifications of the owner(s). A business plan is helpful because it forces potential small-business owners to be specific about the products and services they intend to offer, and it is necessary when talking with bankers or other investors. There are three important considerations:

*A business plan takes a long time to write; entrepreneurs should make sure that they devote enough time to crafting it.

*One of the most important parts of the business plan is the executive summary, which must catch the reader's interest.

*Additionally, getting the completed business plan in the right hands is almost as important as getting the right information in it.

(pages 160-161)

 
9. 
What are the five most common reasons for failure of small businesses, and what can you as an entrepreneur do to avoid them, according to your text and the oline lesson presentation?
 

Five Reasons why Small Businesses Fail:

*Lack of planning-This may include growing too big too fast, underpricing or overpricing, underestimating how long it will take to build the market, or a failure to plan for unforseen setbacks and expenses.

*Unrealistic financial expectations-Not having enough capital or a plan for paying back borrowed money, being careless with spending money, or extending or expanding credit unwisely.

*Lack of marketing-Not learning enough about the industry or market.

*Wrong business partner or employees.

*Lack of business knowledge-Failing to keep accurate and complete records, misunderstanding business cycles, or treating the business like a hobby.

Small-Business Pointers for Success:

*Learning from other entrepreneurs' successes and mistakes.

*Gaining experience by working in a traditional business, even as an intern or apprentice.

*Taking over an existing successful company, or seeking profit-sharing or ownership in one that you work for.

(page 160)

 
10. 
Describe the types of financial resources available to entrepreneurs, as discussed in the text.
 

*Venture capitalist, a compnay that has money to invest in small and large businesses and in return for its investment will generally take a stake in the business.

*Angel investors, individuals, usually wealthy, who invest their own money in a business for share of the company.

*The Small Business Administration (SBA)-A U.S. government agency that advises and assists small businesses by providing management training and financial advice and loans. The SBA's microloan program awards loans based on the borrower's integrity and the soundness of his or her business idea.

*Other government agencies:

-The Farmers Home Administration

-The Econoic Development Authority (pages 162-163)

 
11. 

Which of the following is characteristic that all successful entrepreneurs have in common?

A. Follows directions extremely well

B. Pays close attention to what others think of their ideas

C. Has a burning desire to build their dreams into reality

D. Can direct people to do the work so that they don't have to work extremely long hours

 
C. Has a burning desire to build their dreams into reality
 
12. 

Which of the following types of business is the easiest to start?

A. Sole proprietorship

B. Partnership

C. S-Corporation

D. C-Corporation

 
A. Sole proprietorship
 
13. 

The responsibility of business owners for all of the debts of the business is known as:

A. limited liability.

B. unlimited equity.

C. unlimited liability.

D. unlimited indebtedness.

 
C. unlimited liability.
 
14. 

Which of the following types of partnerships limites the partners' risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision?

A. General partnership

B. Limited partnership

C. Master limited partnership

D. Limited liability partnership

 

D. Limited liability partnership

 
15. 

_________ refers to the processes, customs, policies, laws an institutions affecting the way in which a corporation is directed, administered or controlled.

A. Corporate administration.

B. Corporate rule.

C. Corporate governance.

D. Corporate responsibility.

 
C. Corporate governance.
 
16. 

A(n) ________ is the group ultimately responsible for the business.

A. group of C-level officers

B. board of directors

C. angel board

D. investment bank consortium

 
B. board of directors
 
17. 

The _______ is created by the government and is taxed like a sole proprietorship and partnership.

A. S-corporation

B. C-corporation

C. master limited partnership

D. G-corporation

 
A. S-corporation
 
18. 

Which of the following forms of business ownership has unlimited liability?

A. General partnership

B. Limited partnership

C. Conventional corporation

D. S-Corporation

 
A. General partnership
 
19. 

Which of the following is NOT an advantage of a sole proprietorship?

A. It is easy to get out of business.

B. You get to be your own boss.

C. You retain all of the profit.

D. You have no liability or legal responsibility for the business.

 

D. You have no liability or legal responsibility for the business.

 
20. 

Which of the following is an advantage of a partnership?

A. Increased financial resources

B. Division of knowledge

C. Division of profits

D. Varying points of view about how and where to spend money

 

A. Increased financial resources

 
21. 

A _______ is a business owned and controlled by the people who use it.

A. sole proprietorship

B. corporation

C. francise

D. cooperative

 

D. cooperative

 
22. 

In franchising, there may be the problem of ______ of exisiting businesses, because too many stores open up in a small area.

A. unlimited liability

B. cannibalization

C. double taxation

D. hostile takeover

 

B. cannibalization

 
23. 

A _________ merger is the joining of two firms involved in different stages of related businesses.

A. Vertical

B. Horizontal

C. Diagonal

D. Conglomerate

 
A. Vertical
 
24. 

A _________ merger joins two firms in the same industry and allows them to diversify or expand their products.

A. vertical

B. horizontal

C. diagonal

D. conglomerate

 

B. horizontal

 
25. 

A(n) _______ is one company's purchase of the property and obligations of another company.

A. vertical merger

B. horizontal merger

C. diagonal acquisition

D. acquisition

 

D. acquisition

 
26. 

A ________ merger unites firms in completely unrelated industries.

A. vertical

B. horizontal

C. diagonal

D. conglomerate

 

D. conglomerate

 
27. 

A(n) _________ refers to attempts by the bidder to acquire a firm against the interest of the latter's management.

A. vertical merger

B. hostile takeover

C. horizontal maneuver

D. acquisition

 

B. hostile takeover

 
28. 

The difference between a leveraged buyout and a management buyout is that:

A. a management buyout is done by managers only.

B. investors in a leveraged buyout borrow the money to invest.

C. investors in a management buyout always borrow money to invest.

D. There is on difference between the two terms.

 
B. investors in a leveraged buyout borrow the money to invest.
 
29. 

A ___________ is a detailed written statement that describes the nature of the business, the target market, the potential for customers, the advantages the business will have in relation to competition and the resources and qualifications of the owner(s).

A. profit and loss

B. statement of cash flow

C. business plan

D. balance sheet

 

C. business plan

 
30. 

__________ is the process of continuing to innovate a small business.

A. Intrapreneuring

B. Extrapreneuring

C. Entrepreneuring

D. Continuous improvement

 

A. Intrapreneuring