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Related Flashcards
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Cards In This Set
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Sole proprietorship
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1. A business owned and run by a single individual.
· How formed: The easiest to form except for the occaisional licenses and fees. Ex. (lemonade stand, lawnmower service, etc.)
· Advantages: Easy to start, decisions do not require approval from head people. Owner keeps the profits of successful management w/o sharing, doesn’t have to pay separate business income taxes.
· Disadvantages: Owner of business has unlimited liability- responsible for losses and debts. Difficult to raise financial capital. Bad size and efficiency. Minimum inventory.
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Partnership
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1. a business that is jointly owned by two or more persons.
· How formed: Papers articles of partnership are drawn up to specify arrangements between partners. Talks about how it is divided equally etc.
· Advantages: Ease of startup. Ease of management. Lack of special taxes on a partnership. Attracts capital more easily. Larger. More efficient operations. Attracts top talent to partnerships.
· Disadvantages: each partner fully responsible for other. Limited partnerships, partners responsibilities for debts, etc. limited life. Partners don’t get along.
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Corporation
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1. Form of business in the U.S. organization recognized by law as a separate legal entity with all the rights of an individual.
· How to form: Must file for permission form the national government or the state where the business will have its headquarters. If approved, a charter- government document that gives permission to create a corporation is granted. CHARTER specifies the # of stock or ownership certificates in the firm. Shares are sold to stockholders or shareholders. The money gained from the sale of stock is used to set up the corporation. If corporation is profitable, it may eventually issue a dividend.
· Advantages: Ease of raising financial capital. Limited liability- coporation itself is fully responsible for its obligations. Can hire professional managers to run the firm.
· Disadvantages: Double taxation- taxation of dividends both as corporate profit and as personal income. Difficulty and expense of getting a charter. Owners and shareholders have little voice in how the business is run. More government regulation.
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a combination of two or more businesses to form a single firm.
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Merger
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common measure of business profits determined by subtracting all expenses, including taxes, from revenues.
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Net income
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a noncash charge, money stays in the firm rather than being paid for someone else. Gradual wear on capital goods.
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Depreciation
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the sum of net income and noncash charges. Total amount of new funds a business generates from operations.
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Net-income
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combination of two or more firms producing the same kind of product.
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Horizontal merger
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Combination of firms involved in different stages of manufacturing or marketing.
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Vertical merger
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Reasons why companies merge
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To grow faster, to become more efficient, to acquire or deliver a better product, to eliminate a rival, or to change its image. Efficiency. Acquire new product lines. To catch up with or even eliminate rivals. Lose corporation identity.
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Firm with four or more businesses making unrelated products with no single business responsible for a majority of its sales.
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Conglomerate
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1. Corporation producing and selling without regard to national boundaries and whose business activities are located in several different countries.
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Multinational
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econ. Organization that operates like a business but does not seek financial gain.
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Non-profit organization
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