BSNS114 Exam Study Guide with Questions
and 100% Correct Answers
partnership - Answer 2 or more business owners have joined together legally to manage
and share its profits
General partnership - Answer all partners are owners and active in managing the firm
-equally share profits and losses
-don't decide on own
-all partners invest money
limited partnership - Answer has both general partners who are owners and managers,
and limited partners, who are owners not managers
not responsible for management but still invest personal belongings are not liable
Advantages of a partnership - Answer 2 or more owners
-more capital available
-relatively easy to start
-income taxed once as personal income
disadvantages of a partnership - Answer unlimited liability for general
- partnership dissolves when one dies or sells
-difficult to transfer ownership
Corportation - Answer legal process to set up a corporate entity
more expensive to set up and run
, can't be sole or general
advantages of a corporation - Answer -separate from its owners legal entity
-easy to transfer ownership
-limited liability (only lose money put into shares)
disadvantages of a corporation - Answer separation of ownership and management may
create conflict of interest
all profits are taxed at a corporate tax rate
costly to establish and register
whats a huge problem in a corporation - Answer conflict of interest
in theory managers should - Answer set aside self interest and maximise shareholder
wealth
agency problem - Answer a firm's manager will not always work to maximise firm value
how to overcome the agency problem? - Answer compensation plan- paid bonuses tied
to performance
primary market - Answer firm issues new securities and sells them (IPO)
between company and investor
IPO - Answer first offering of stock to public
secondary market - Answer securities traded between investors
and 100% Correct Answers
partnership - Answer 2 or more business owners have joined together legally to manage
and share its profits
General partnership - Answer all partners are owners and active in managing the firm
-equally share profits and losses
-don't decide on own
-all partners invest money
limited partnership - Answer has both general partners who are owners and managers,
and limited partners, who are owners not managers
not responsible for management but still invest personal belongings are not liable
Advantages of a partnership - Answer 2 or more owners
-more capital available
-relatively easy to start
-income taxed once as personal income
disadvantages of a partnership - Answer unlimited liability for general
- partnership dissolves when one dies or sells
-difficult to transfer ownership
Corportation - Answer legal process to set up a corporate entity
more expensive to set up and run
, can't be sole or general
advantages of a corporation - Answer -separate from its owners legal entity
-easy to transfer ownership
-limited liability (only lose money put into shares)
disadvantages of a corporation - Answer separation of ownership and management may
create conflict of interest
all profits are taxed at a corporate tax rate
costly to establish and register
whats a huge problem in a corporation - Answer conflict of interest
in theory managers should - Answer set aside self interest and maximise shareholder
wealth
agency problem - Answer a firm's manager will not always work to maximise firm value
how to overcome the agency problem? - Answer compensation plan- paid bonuses tied
to performance
primary market - Answer firm issues new securities and sells them (IPO)
between company and investor
IPO - Answer first offering of stock to public
secondary market - Answer securities traded between investors
