Chapter 4
Why would secrecy in operating a business be important to an owner? What form of organization would be most appropriate for a business requiring great secrecy?
Secrecy would be important to an owner if they were worried about having to share operational trade secrets and/or financial reports. A sole proprietorship would be most appropriate for a business requiring great secrecy.
Compare the liability of the owners of partnerships, sole proprietorships, and corporations.
Sole proprietorships experience unlimited liability. Which means that if the business is unable to pay creditors, the owner will have to use their own money. Partnerships experience what is known as a somewhat limited amount of liability. And lastly, corporations experience a limited amount of liability, which means their potential loss is limited to their original investment, and the loss does not fall on its stockholders.
Which form of business organization has the least government regulation? Which has the most?
Sole proprietorships have the least government regulation. Corporations have the most government regulation.
Which form of business requires the most specialization of skills? Which requires the least? Why?
The form of business that requires the most specialization of skills is a sole proprietorship because they have to be able to perform many functions and possess a portfolio or diverse skills. These things are hard for a sole owner to specialize in all alone. The form of business that requires the least amount of specialization of skill is a partnership because the business can be productive when each of the partners are working on a trade or area they specialize in.
The most common example of a cooperative is a farm co-op. Explain the reasons for this and the benefits that result for members of cooperatives.
The most common example of a cooperative is a farm co-op because multiple farmers need the same kind of supplies, they can save money ordering in massive amounts of bulk items. A co-op can also advertise, which they may not be able to afford on their own, and each business benefits from the expected increase in demand.
Differentiate among the different types of corporations. Can you supply an example of each type?
Domestic- operates in the same state it is based out of. Foreign- when the cooperation does business in other states outside of its "home" state. Alien- when a cooperation outside of the nation it is incorporated in. Private- is a cooperation owned by just one or a few people who are closely involved in managing the business. No stock is sold to the public. (ex: Publix Super Markets) Public- a cooperation whose stock anyone may buy, sell, or trade. (ex: Nike) Quasi-Public- owned and operated by local, state, or federal government. These provide a service to citizens. (ex: NASA) Nonprofit- focus on providing a service rather than earning a profit, but are not owned and operated by a government entity. (ex: American Red Cross)
Name five advantages of a sole proprietorship.
Ease & cost of formation, secrecy, distribution & the use of profits, flexibility & control of the business, and government regulation.
List two different types of partnerships and describe each.
General Partnership- that involves a complete sharing in both the management and the liability of the business. Limited Partnership- has at least one general partner, who assumes unlimited liability, and at least one limited partner, whose liability is limited to his or her investment in the business.
Would you rather own preferred stock or common stock? Why?
I would rather own preferred stock over common stock because preferred stock owners get paid first before any of the other stockholders. I would like to get a monetary, quarterly dividend, as opposed to having a say in how the company is run.
Contrast how profits are distributed in sole proprietorships, partnerships, and corporations.
In a sole proprietorship, profits are distributed exclusively to the owner—they do not have to share with stockholders. In a partnership, the profits are distributed to the partners in the portions that are specified in the articles of the partnership. In a corporation, profits are distributed amongst stockholders.
