MIE 201 Midterm #2 – Makanui – Questions &
Answers
3 types of business ownership - -- sole propreitorship
- partnership
- corporation
-sole proprietorships - -- 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 - -- simplicity
- single layer of taxation
- privacy
- flexibility and control
- personal satisfaction
- fewer limitations on personal income
-sole proprietorship disadvantages - -- unlimited liability
- finite life span
- resource limitations
- limited managerial experience
- demands on owner
- no employee benefits for the owner
-unlimited liability - -- 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
-types of partnerships - -- general partnerships
- limited partnerships
- MLP
- LLP
-general partnerships - -- partners are considered equal by law and all are
liable for the business's debts
- partners share ownership and both have unlimited liability
-limited partnerships - -- 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 limited partners 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
-partnership - -- a legal association of two or more people as co-owners of a
business for profit
-MLP (master limited partnership) - -- 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) - -- 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
-the partnership agreement - -- a written document that states all the terms
of operating the partnership by spelling out the partner's right sand
responsibilities
- not required by law
- spells out details as the division of profits, decision-making authority,
expected contributions, and dispute resolution
- defines the steps a partner must take to sell his or her partnership interest
or what will happen if one of the patterns dies
-advantages of a partnership - -- simplicity
- single layer of taxation
- more resources than a sole proprietorship
- cost sharing between partners
- broader skills and experience
- longevity
-disadvantages of a partnership - -- unlimited liability
debts & lawsuits
- interpersonal problems
managing partner & unproductive partners
-corporations - -- 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? - -- 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 - -- shareholders
- stock certificates
-shareholders - -- owners of a corporation who are issued shares of stock in
return for their investments
-stock certificate - -- 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 - -- public corporations
- private corporations
-public corporations - -- many shareholders
- stock is publicly traded
- stock available for sale to the general public
-private corporations - -- 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?? - -- their financial needs and strategic interests change
-advantages of corporations - -- limited liability
- ability to raise capital
- increased liquidity
- unlimited life span
-limited liability - -- a form of business ownership in which the owners are
liable only up to the amount of their individual investments
-disadvantages of corporations - -- cost and complexity
- reporting requirements
, - possible loss of control
- managerial demands
- double taxation
- short term orientation - stock market
-double taxation - -- feature of taxation that allows stockholders' dividends
to be taxed both as corporate profit and as personal income
-special types of corporations - -- subchapter S corporation
- limited liability corporation
- subsidiary corporation
- alien v. foreign corporation
- benefit or B corporation
- domestic corporation
-S corporation - -- made only for federal income tax purposes and otherwise
is no different from any other corporation
- owners receive the tax advantages of a partnership while they raise money
through the sale of stock
- income and tax deduction flow directly to the owners
-limited liability corporation - -- flexible business entities combine the tax
advantages of a partnership with the personal liability protection of a
corporation
- not restricted in the number of shareholders they can have and members
participation in management is not restricted as it is in limited partnerships
-subsidiary corporations - -- partially or wholly owned by another
corporation known as a parent company which supervises the operations of
the subsidary
-holding company - -- special type of a parent company that owns other
companies for investment reasons and usually exercises little operating
control over those subsidaries
-benefit coropration - -- profit seeking corporation whose charter also
requires it to pursue a stated social or environmental goal
-alien corporation - -- a corporation that operates in the United States but is
incorporated in another country
-foreign corporation - -- a corporation that is incorporated in one state but
that does business in several other states where it is registered
- frequently happens in the state of Delaware where incorporation laws are
more lenient
Answers
3 types of business ownership - -- sole propreitorship
- partnership
- corporation
-sole proprietorships - -- 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 - -- simplicity
- single layer of taxation
- privacy
- flexibility and control
- personal satisfaction
- fewer limitations on personal income
-sole proprietorship disadvantages - -- unlimited liability
- finite life span
- resource limitations
- limited managerial experience
- demands on owner
- no employee benefits for the owner
-unlimited liability - -- 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
-types of partnerships - -- general partnerships
- limited partnerships
- MLP
- LLP
-general partnerships - -- partners are considered equal by law and all are
liable for the business's debts
- partners share ownership and both have unlimited liability
-limited partnerships - -- 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 limited partners 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
-partnership - -- a legal association of two or more people as co-owners of a
business for profit
-MLP (master limited partnership) - -- 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) - -- 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
-the partnership agreement - -- a written document that states all the terms
of operating the partnership by spelling out the partner's right sand
responsibilities
- not required by law
- spells out details as the division of profits, decision-making authority,
expected contributions, and dispute resolution
- defines the steps a partner must take to sell his or her partnership interest
or what will happen if one of the patterns dies
-advantages of a partnership - -- simplicity
- single layer of taxation
- more resources than a sole proprietorship
- cost sharing between partners
- broader skills and experience
- longevity
-disadvantages of a partnership - -- unlimited liability
debts & lawsuits
- interpersonal problems
managing partner & unproductive partners
-corporations - -- 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? - -- 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 - -- shareholders
- stock certificates
-shareholders - -- owners of a corporation who are issued shares of stock in
return for their investments
-stock certificate - -- 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 - -- public corporations
- private corporations
-public corporations - -- many shareholders
- stock is publicly traded
- stock available for sale to the general public
-private corporations - -- 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?? - -- their financial needs and strategic interests change
-advantages of corporations - -- limited liability
- ability to raise capital
- increased liquidity
- unlimited life span
-limited liability - -- a form of business ownership in which the owners are
liable only up to the amount of their individual investments
-disadvantages of corporations - -- cost and complexity
- reporting requirements
, - possible loss of control
- managerial demands
- double taxation
- short term orientation - stock market
-double taxation - -- feature of taxation that allows stockholders' dividends
to be taxed both as corporate profit and as personal income
-special types of corporations - -- subchapter S corporation
- limited liability corporation
- subsidiary corporation
- alien v. foreign corporation
- benefit or B corporation
- domestic corporation
-S corporation - -- made only for federal income tax purposes and otherwise
is no different from any other corporation
- owners receive the tax advantages of a partnership while they raise money
through the sale of stock
- income and tax deduction flow directly to the owners
-limited liability corporation - -- flexible business entities combine the tax
advantages of a partnership with the personal liability protection of a
corporation
- not restricted in the number of shareholders they can have and members
participation in management is not restricted as it is in limited partnerships
-subsidiary corporations - -- partially or wholly owned by another
corporation known as a parent company which supervises the operations of
the subsidary
-holding company - -- special type of a parent company that owns other
companies for investment reasons and usually exercises little operating
control over those subsidaries
-benefit coropration - -- profit seeking corporation whose charter also
requires it to pursue a stated social or environmental goal
-alien corporation - -- a corporation that operates in the United States but is
incorporated in another country
-foreign corporation - -- a corporation that is incorporated in one state but
that does business in several other states where it is registered
- frequently happens in the state of Delaware where incorporation laws are
more lenient
