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level: Chapter 6

Questions and Answers List

level questions: Chapter 6

QuestionAnswer
Sole Proprietorship:a business that is owned, and usually managed, by one person
Partnershipa legal form of business with two or more parties.
Corporation:a legal entity with authority to act and have liability separate from its owners
Advantages to Sole Proprietorship•Ease of starting and ending •Be your own boss •Pride of ownership •Retain profit •No special taxes – profits taxed as personal income •Less regulation
Disadvantages to Sole Proprietorship•Unlimited liability •Limited financial resources •Difficulty recruiting for needed skills •Overwhelming time commitment •Few fringe benefits •Limited growth •Limited lifespan •Possibly pay higher taxes
General PartnershipA partnership in which all owners share in operating the business and in assuming liability for the business’s debts
Limited PartnershipA partnership with one or more general partners and one or more limited partners.
Partnership Advantages•More financial resources •Shared management and pooled, complementary skills and knowledge •Longer survival •Shared risk •No special taxes •Less regulations than a corporation
Partnership Disadvantages•Unlimited liability •Division of profits •Disagreements among partners •Difficulty of termination •Possibility of higher taxes
Corporationa federally or provincially chartered legal entity with authority to act and have liability separate from its owners (stockholders/shareholders) .
Private corporation:is usually controlled by a small number of shareholders and it shares are not listed on a stock exchange
public corporation:has the right to issue shares to the public, so its shares may be listed on a stock exchange
Corporation Advantages•Limited liability •Public Corporation: More money for investment •Size: may be larger due to increased resources •Perpetual life•Ease of ownership change •Ease of attracting talented employees •Separation of ownership from management
Corporation Disadvantages•High initial costs •Extensive paperwork •Double taxation •Two tax returns •Size: may become too inflexible to new ideas •Termination difficult •Stockholder and board conflict
Articles of incorporation:a legal authorization from the federal or provincial/territorial government for a company to use the corporate format
Franchise agreement:an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell its goods and services in a given territory.
Franchisor:a company that develops a product concept and sells others the rights to make and sell the products.
Franchisethe right to use a specific business’s name and sell its goods and services in a given territory
Franchisee:a person who buys a franchise
Franchises Advantages•Management and marketing assistance •Personal ownership •Nationally recognized name •Financial advice and assistance •Lower failure rate
Franchises Disadvantages•Large start-up costs •Shared profit •Management regulation •Coattail effects •Restrictions on selling •Fraudulent franchisors
Co-operative:an organization owned by people-producers, consumers, or workers-with similar needs who pool their resources for mutual gain, e.g, credit unions
How do Co- operatives workPurpose: meets the common needs of their members Control Structure: one member/one vote system Allocation of Profit: profits are shared among their member-owners on the basis of how much they use the organization, not on how many shares they hold