Chapter 5- Business Ownership

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Define sole proprietorship:

Business owned by one person

What % of the US is sole proprietorship?


What are the advantages of a sole proprietorship? (6)

1-easy to start up 2-control over profits 3-control over operations 4-lower taxes 5-easy to dissolve 6-pride of ownership

What are the disadvantages of a sole proprietorship? (6)

1-bigger chance of failure 2-unlimited liability 3-difficult to raise capital 4-responsible for all losses 5-long hours 6-management knowledge-limited

Define partnership:

2 or more people sharing ownership and operation of business by contractual agreement

What are the advantages of a partnership? (5)

1-more capital 2-combined management skills 3-tax advantages 4-personal satisfaction 5-shared losses

What are the disadvantages of a partnership? (5)

1-unlimited liability 2-shared profits 3-possible conflicts 4-possible instability 5-difficult to withdraw assets

What does a contract of partnership have to address? (7)

1-name of company and description 2-names and type of partner of each party 3-the amount of investment by each 4-how profits and losses are shared 5-responsibilities of the partners 6-salaries of partners 7-dissolution of the partnership

Define corporations:

A legal entity-can buy and sell, contract, sue, and be sued Can be owned by 1 person or more

What are the advantages of a corporation? (4)

1-limited liability 2-greater capital 3-unlimited life 4-specialized management knowledge

What are the disadvantages of a corporation? (4)

1-increased taxes 2-difficult to start 3-red tape 4-increased government control

What are the owners of a corporation known as? (2)

Stockholders or shareholders

In order to operate as a corporation what is needed?

Written permission is needed from the state= Certificate of Incorporation

What do stockholders elect that oversee the operations of the business?

Board of Directors

Profits from the business are: (2)

1-reinvested in the business 2-paid to the owners as dividends

What is a Cooperative?

A business owned by the member it serves and managed in their best interest

Describe 2 ways that a Cooperative normally assigns voting rights to its owners:

1- Equally: one owner, one vote 2- Base on the amount of business the member does w/ the Coop

The owner of a Cooperative is called a _______


The name of the group of people that is elected by the owners of a Cooperative to oversee the operations of the Coop is _____ __ _________

Board of Directors

What is the purpose of a Consumer’s Coop?

To buy thing for the members more cheaply

What is the purpose of a Producer’s Coop?

To give members a channel to sell their products

What is a Franchise?

A business that through a contract, a local owner is allowed to sell a "well known" product in a specific manner by the parent

What are advantages of a Franchise?

1- easy to start 2- selling a "well known" product 3- management advice from the parent 4- national advertising provided

What are disadvantages of a Franchise?

1- requires a large amount of capital at start 2- must pay parent a percent of profits every year 3- very competitive

If you decide to buy a McDonald’s Franchise to open in DC, you are called the:


If you decide to buy a McDonald’s Franchise to open in DC, McDonald’s Corporation is called the:


The owner is boss; makes all decisions:

Sole Proprietorship

Cannot engage in business unless approved by the state:


May be owned by thousands of diff people:

Partnership, Corporation, Cooperative

Owner or owners get all profits; also responsible for debts of other owners:

Sole Proprietorship, Partnership

One of the owners may be personally responsible for debts of other owners:


Considered the best type for raising large amounts of capital:


Profits distributed in the form of dividends according to the number of shares owned:


The business is managed by a board of directors:

Corporation, Cooperative

Earnings are paid back to members in proportion to their purchases:


The parent company often advertises for all the operators throughout the country:


Pays an annual refund to members only:


Each owner has one vote for each share of stock:


Organized to buy things for members as well as sell goods and services to members:


Each owner has only one vote regardless of number of shares she or he owns:


The owners are not liable for the debts of the firm:


The operator pays a percentage of sales or a set fee to parent company:


While these businesses are relatively easy to start, they require a lot of capital and are often very competitive:


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