MIE 201 EXAM 2: CHAPTERS 4, 5, 8 STUDY GUIDE
3 types of business ownership - Answers - - sole propreitorship
- partnership
- corporation
sole proprietorships - Answers - - businesses owned by one individual
- the most common form of business organization in the United States
- easiest and least expensive form of business to start
- ex: tutoring/bookkeeping/landscaping etc...
sole proprietorship advantages - Answers - - simplicity
- single layer of taxation - taxed at individual rates
- privacy
- flexibility and control
- personal satisfaction
- fewer limitations on personal income
-complete ownership of the profits
sole proprietorship disadvantages - Answers - - unlimited liability
- finite life span
- resource limitations
- limited managerial experience
- demands on owner
- no employee benefits for the owner
-lack of qualified employees (can't match wage demands)
Many sole proprietors will focus on ______ - Answers - services (like child care, salons,
etc) rather than on the manufacture of goods
unlimited liability - Answers - - means that the owner is personally and fully responsible
for all losses and debts of the business
- major drawback to a sole proprietorship or a partnership
- from a legal standpoint the owner and business are one and the same
definition of a partnership - Answers - an association of two or more persons to carry
on, as co-owners, a business for profit; profits will be divided as specified in the
agreement
types of partnerships - Answers - - general partnerships
- limited partnerships
- MLP
- LLP
,general partnerships - Answers - - partners are considered equal by law and all are
liable for the business's debts
- partners share ownership and both have unlimited liability
ex) lawyers, accountants, etc.
limited partnerships - Answers - - one or more persons act as general partners who run
the business while the remaining partners are passive investors (not involved in
managing the business)
- called this because their liability (amount of money they can lose) is limited to the
amount of the capital they invested at the beginning of their partnership
- passive investors and have limited liability
articles of partnership - Answers - legal documents that set forth the basic agreement
between partners
-list the money or assets that each partner contributed
-states each partner's individual management role/duty
- defines the steps a partner must take to sell his or her partnership interest or what will
happen if one of the patterns dies
MLP (master limited partnership) - Answers - - allowed to raise money by selling units of
ownership to the general public in the same way that corporations sell shares of stock to
the public
- gives MLPs the fundraising capabilities of corporations without the double-taxation
disadvantage
- mainly oil and gas companies
LLP (limited liability partnership) - Answers - - form of business was created to help
protect individual partners in certain professions from major mistakes (such as errors
that trigger malpractice lawsuits) by other partners in the firm
- each partner has unlimited liability only for his or her own actions and at least some
degree of limited liability for the partnership as a whole
advantages of a partnership - Answers - - simplicity
- single layer of taxation
- more resources than a sole proprietorship
- cost sharing between partners
- broader skills and experience
- longevity
disadvantages of a partnership - Answers - - unlimited liability for general partners
- interpersonal problems
managing partner & unproductive partners
- limited partners have no voice in the management of the business
- distribution of profits
, corporations - Answers - - businesses that are owned by many investors who buy
shares of stock
- a legal entity with the power to own property and conduct business
- can receive, own, and transfer property; make contracts; sue; and be sued
- faces limited liability because it is its own legal entity
a corporation is like what? - Answers - - a horcrux
- they can be in so many types of business that even if you take out one component
they will still survive and thrive in all their other components of business
ownership of corporations - Answers - - shareholders
- stock certificates
shareholders - Answers - - owners of a corporation who are issued shares of stock in
return for their investments
stock certificate - Answers - - represents shares of stock owned by shareholders of a
company
- may be sold or given to upon the death of the owner to someone else
types of corporations - Answers - - public corporations
- private corporations
public corporations - Answers - - many shareholders
- stock is publicly traded
- stock available for sale to the general public
private corporations - Answers - - few shareholders
- stock not publicly traded
- stock is held only by a few individuals or companies and is not publicly traded
- owners retain complete control over their operations and ownership by withholding
their stock from public sale
- finance their operating costs and growth from either company earnings or bank loans
corporations change from private to public ownership and vice versa when?? - Answers
- - their financial needs and strategic interests change
Quasi-public corporation - Answers - corporations owned and operated by the federal,
state, or local government
ex) NASA, and USPS
advantages of corporations - Answers - - limited liability
- ability to raise capital
- increased liquidity
3 types of business ownership - Answers - - sole propreitorship
- partnership
- corporation
sole proprietorships - Answers - - businesses owned by one individual
- the most common form of business organization in the United States
- easiest and least expensive form of business to start
- ex: tutoring/bookkeeping/landscaping etc...
sole proprietorship advantages - Answers - - simplicity
- single layer of taxation - taxed at individual rates
- privacy
- flexibility and control
- personal satisfaction
- fewer limitations on personal income
-complete ownership of the profits
sole proprietorship disadvantages - Answers - - unlimited liability
- finite life span
- resource limitations
- limited managerial experience
- demands on owner
- no employee benefits for the owner
-lack of qualified employees (can't match wage demands)
Many sole proprietors will focus on ______ - Answers - services (like child care, salons,
etc) rather than on the manufacture of goods
unlimited liability - Answers - - means that the owner is personally and fully responsible
for all losses and debts of the business
- major drawback to a sole proprietorship or a partnership
- from a legal standpoint the owner and business are one and the same
definition of a partnership - Answers - an association of two or more persons to carry
on, as co-owners, a business for profit; profits will be divided as specified in the
agreement
types of partnerships - Answers - - general partnerships
- limited partnerships
- MLP
- LLP
,general partnerships - Answers - - partners are considered equal by law and all are
liable for the business's debts
- partners share ownership and both have unlimited liability
ex) lawyers, accountants, etc.
limited partnerships - Answers - - one or more persons act as general partners who run
the business while the remaining partners are passive investors (not involved in
managing the business)
- called this because their liability (amount of money they can lose) is limited to the
amount of the capital they invested at the beginning of their partnership
- passive investors and have limited liability
articles of partnership - Answers - legal documents that set forth the basic agreement
between partners
-list the money or assets that each partner contributed
-states each partner's individual management role/duty
- defines the steps a partner must take to sell his or her partnership interest or what will
happen if one of the patterns dies
MLP (master limited partnership) - Answers - - allowed to raise money by selling units of
ownership to the general public in the same way that corporations sell shares of stock to
the public
- gives MLPs the fundraising capabilities of corporations without the double-taxation
disadvantage
- mainly oil and gas companies
LLP (limited liability partnership) - Answers - - form of business was created to help
protect individual partners in certain professions from major mistakes (such as errors
that trigger malpractice lawsuits) by other partners in the firm
- each partner has unlimited liability only for his or her own actions and at least some
degree of limited liability for the partnership as a whole
advantages of a partnership - Answers - - simplicity
- single layer of taxation
- more resources than a sole proprietorship
- cost sharing between partners
- broader skills and experience
- longevity
disadvantages of a partnership - Answers - - unlimited liability for general partners
- interpersonal problems
managing partner & unproductive partners
- limited partners have no voice in the management of the business
- distribution of profits
, corporations - Answers - - businesses that are owned by many investors who buy
shares of stock
- a legal entity with the power to own property and conduct business
- can receive, own, and transfer property; make contracts; sue; and be sued
- faces limited liability because it is its own legal entity
a corporation is like what? - Answers - - a horcrux
- they can be in so many types of business that even if you take out one component
they will still survive and thrive in all their other components of business
ownership of corporations - Answers - - shareholders
- stock certificates
shareholders - Answers - - owners of a corporation who are issued shares of stock in
return for their investments
stock certificate - Answers - - represents shares of stock owned by shareholders of a
company
- may be sold or given to upon the death of the owner to someone else
types of corporations - Answers - - public corporations
- private corporations
public corporations - Answers - - many shareholders
- stock is publicly traded
- stock available for sale to the general public
private corporations - Answers - - few shareholders
- stock not publicly traded
- stock is held only by a few individuals or companies and is not publicly traded
- owners retain complete control over their operations and ownership by withholding
their stock from public sale
- finance their operating costs and growth from either company earnings or bank loans
corporations change from private to public ownership and vice versa when?? - Answers
- - their financial needs and strategic interests change
Quasi-public corporation - Answers - corporations owned and operated by the federal,
state, or local government
ex) NASA, and USPS
advantages of corporations - Answers - - limited liability
- ability to raise capital
- increased liquidity
