BSNS114 Exam Questions And
Complete Answers
Sole Proprietorship - Answer Owned and managed by a single person
Partnership - Answer Two or more owners joined together to manage and share profits
General partnership - Answer All partners are owners and active in managing
Limited partnership - Answer Has limited partners who are owners but not managers
Corporation - Answer A group of companies that act as a single entity
Incorporation - Answer Legal process used to form a coporate entity
Competing interest - Answer Shareholders and managers having their own selfish
interests
Agency problems - Answer Conflicts between principal and agent
The 3 disciplinary mechanisms - Answer Shareholders annual meeting, board of
directors, compensation plan
Purpose of shareholders annual meeting - Answer Evaluate performance
Theory of board of directors - Answer Oversee management
Theory of compensation plan - Answer Tying compensation to performance review
Practice of shareholders annual meeting - Answer Cost of meeting exceeds benefits,
lots of absence, shareholders sell stock
Practice of board of directors - Answer Often fails assigned role (protecting interest of
shareholders)
Practice of compensation plan - Answer Evidence is growing that pay for performance is
ineffective
Debt holders - Answer Get a percentage of interest on money lent to firm
Shareholders - Answer Ownership claims, receive a share of earnings
Financial institution - Answer Bring together savers with money to invest in firms that
need it
Advantages of sole proprietorship - Answer Simple, inexpensive, no sharing of profits,
taxed as personal income
Disadvantages of sole proprietorship - Answer Limited capital, costly to transfer
Complete Answers
Sole Proprietorship - Answer Owned and managed by a single person
Partnership - Answer Two or more owners joined together to manage and share profits
General partnership - Answer All partners are owners and active in managing
Limited partnership - Answer Has limited partners who are owners but not managers
Corporation - Answer A group of companies that act as a single entity
Incorporation - Answer Legal process used to form a coporate entity
Competing interest - Answer Shareholders and managers having their own selfish
interests
Agency problems - Answer Conflicts between principal and agent
The 3 disciplinary mechanisms - Answer Shareholders annual meeting, board of
directors, compensation plan
Purpose of shareholders annual meeting - Answer Evaluate performance
Theory of board of directors - Answer Oversee management
Theory of compensation plan - Answer Tying compensation to performance review
Practice of shareholders annual meeting - Answer Cost of meeting exceeds benefits,
lots of absence, shareholders sell stock
Practice of board of directors - Answer Often fails assigned role (protecting interest of
shareholders)
Practice of compensation plan - Answer Evidence is growing that pay for performance is
ineffective
Debt holders - Answer Get a percentage of interest on money lent to firm
Shareholders - Answer Ownership claims, receive a share of earnings
Financial institution - Answer Bring together savers with money to invest in firms that
need it
Advantages of sole proprietorship - Answer Simple, inexpensive, no sharing of profits,
taxed as personal income
Disadvantages of sole proprietorship - Answer Limited capital, costly to transfer
