Chapter 4 Business Review

How do an S corporation and a limited-liability company differ?

Even though both an S corporation and a limited-liability company can provide the benefits of avoiding double taxation and retaining limited-liability protection, a limited-liability company is not restricted to a hundred stockholders as is an S corporation. LLCs are also less restricted and have more flexibility than S corporations in terms of who can become owners and who can make management decisions.

How does a partnership differ from a sole proprietorship?

In a partnership, two or more persons act as co-owners of the business for profit. A sole proprietorship has only one owner. Because partners can pool their funds, a partnership usually has more capital available than does a sole proprietorship

Describe the three types of mergers.

-A horizontal merger is a merger between firms that make and sell similar products or services in similar markets. -A vertical merger is one between firms that operate at different but related levels in the production and marketing of a product. -A conglomerate merger is one between firms in completely unrelated industries.

What are the differences between a domestic corporation, a foreign corporation, and an alien corporation?

An incorporated business is called a domestic corporation in the state in which it is incorporated. In all other states in which it does business, it is a foreign corporation. An alien corporation is chartered by a foreign government and conducts business in the United States.

In what ways are joint ventures and syndicates alike? In what ways do they differ?

Both joint ventures and syndicates are formed to achieve a specific goal or purpose. Both operate for a limited period of time. Syndicates are typically formed when the specific task requires a large amount of capital.

What are some advantages of a sole proprietorship?

The advantages are (1) ease of start-up (2) pride of ownership (3) retention of all profits by the sole proprietor (4) flexibility (5) possible tax advantages

What are the major advantages associated with the corporate form of business ownership?

The advantages of a corporation include (1) limited liability (2) ease of raising capital (3) ease of transfer of ownership (4) perpetual life (5) specialized management

What rights do stockholders have?

Vote, Share in earnings, preemptive right and residual claim.

What is the difference between a general partner and a limited partner?

A general partner is responsible for running the business and for all business debts. A limited partner has no management responsibility and is not responsible for business debts beyond the amount he or she has invested in the business.

Which disadvantages of sole proprietorship does the partnership tend to eliminate or reduce?

. A partnership also tends to limit the disadvantage of limited business skills and knowledge because a partner can add skills and knowledge.

What is a sole proprietorship?

A business that is owned and usually operated by one person and the simplest form of business to enter, control, and leave

What is the difference between an open cooperation and a closed cooperation?

An open corporation is a corporation whose stock is bought and sold on security exchanges and can be purchased by any individual. A closed corporation is one whose stock is owned by relatively few people and is not sold to the general public.

What are some disadvantages of a sole proprietorship?

The disadvantages are (1) unlimited liability (2) lack of continuity (3) lack of money (4) limited management skills (5) difficulty in hiring employees.

What are the major disadvantages associated with the corporate form of business ownership?

The disadvantages include (1) difficulty and expense of formation (2) government regulation (3) double taxation (4) lack of secrecy

What are the primary duties of a corporation's board of directors? How are directors selected?

The major responsibilities of the board of directors are to set company goals and to develop general plans for meeting those goals. The board is also responsible for the overall operation of the firm. Board members are elected by the firm's stockholders. The board of directors may be elected from among the corporation's top managers. Those elected from outside the corporation are generally experienced managers with proven leadership ability or specific talents.

What issues should be included in a partnership agreement? Why?

The partnership agreement should state who will make the final decisions, what each partner's duties will be, and the investment each partner will make. The partnership agreement should also state how much profit or loss each partner receives. Finally, the partnership agreement should state what happens if a partner wants to dissolve the partnership or dies. It is always wise to try to resolve the above issues before you begin a partnership. In fact, you may want to point out that if partners can't agree on the main points that should be included in a partnership agreement, they will have a much more difficult time running a partnership business.