logo image

Foundation of Business Ch 4-6

sole proprietorship
-a business that is owned (and usually operated) by one person

-The simplest form of business ownership and the easiest to start

The most popular form of business ownership

ADVANTAGES of Sole Proprietorships
-Ease of start-up and closure

-Pride of ownership

-Retention of all profits

-No special taxes

-Flexibility of being your own boss

DISADVANTAGES of Sole Proprietorships
– Unlimited liability
• A legal concept that holds a business owner personally responsible for all the debts of the business
– Lack of continuity
– Lack of money
– Limited management skills
– Difficulty in hiring employees
– A voluntary association of two or more persons to act as co- owners of a business for profit

-No legal limit on the maximum number of partners; most have only two
– Large accounting, law, and advertising partnerships have multiple partners
– Partnerships are usually a pooling of special talents or the result of a sole proprietor taking on a partner Dennis, Trevor, VMKS @ Pasadena

Types of Partners
General Partner
Limited Partner
General Partner
– a person who assumes full or shared responsibility for operating a business

– a business co-owned by two or more general partners who are liable for everything the business does

Limited Partner
– A person who contributes capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership

– a business co-owned by one or more general partners who manage the business and limited partners who invest money in it

– Master limited BLANK: a business partnership that is owned and managed like a corporation but taxed like a partnership

Articles of partnership
– An agreement listing and explaining the terms of the partnership; written is preferable to oral

Agreement should state
– Who will make final decisions
– What each partner’s duties will be
– How much each partner will invest
– How much profit or loss each partner receives or is responsible for
– How the partnership can be dissolved

ADVANTAGES of Partnerships
• Ease of start-up
• Availability of capital
and credit
• Personal interest
• Combined business skills
and knowledge
• Retention of profits
• No special taxes
DISADVANTAGES of Partnerships
• Unlimited liability
• Management disagreements • Lack of continuity
• Frozen investment
• Lack of continuity
An artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter
into binding contracts.

-exists only on paper!

Corporate ownership: Stock
– The shares of ownership of a corporation
Cooperate ownership: Stockholder
– A person who owns a corporation’s stock
Corporate ownership: Closed corporation
– A corporation whose stock is owned by relatively few people and is not sold to the general public
Corporate ownership: Open corporation
– A corporation whose stock is bought and sold on security exchanges and can be purchased by any individual
• The process of forming a corporation

– Most experts recommend consulting a lawyer

Forming a corporation: Where to incorporate
– business can incorporate any state they choose!
Domestic Corporation
– A corporation in the state in which it is incorporated
Foreign corporation
– A corporation in any state in which it does business except the one in which it is incorporated
Alien corporation
– A corporation chartered by a foreign government and conducting business in the U.S
The Corporate Charter: Articles of incorporation
– a contract between the corporation and the state in which the state recognizes the formation of the artificial person that is the corporation and includes:

-firm’s name and address
-incorporators’ names and addresses
-purpose of the corporation
-maximum amount of stock and types of stock to be issued
-rights and privileges of stockholders length of time the corporation is to exist

Stockholders’ rights: Common stock
– Stock owned by individuals or firms who may vote on corporate matters but whose claims on profit and assets are subordinate to the claims of others
Stockholders’ rights: Preferred stock
– Stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common stock owners
Stockholders’ rights: Dividend
– A distribution of earnings to the stockholders of a corporation
Stockholders’ rights: Proxy
A legal form listing issues to be decided at a stockholders’ meeting and enabling stockholders to transfer their voting rights to some other individual or individuals
Organizational meeting
• The last step in forming a corporation

the incorporators and original stockholders meet to adopt corporate by-laws and elect their first board of directors

Corporate Structure
-Stockholders ELECT board of director
-board of director APPOINTS executive
-executive HIRES employees
Advantages of Corporations
• Limited liability
• Ease of raising capital
• Ease of transfer of
• Perpetual life
• Specialized management
Disadvantages of Corporations
– Difficulty and expense of formation
– Government regulation and increased paperwork
– Conflict within the corporation
– Double taxation
– Lack of secrecy
A corporation that is taxed as if it were a partnership
(income taxed as personal income of stockholders)
S-corporation Advantages
– Avoids double taxation of a corporation
– Retains the corporation’s legal benefit of limited liability
S-corporation Criteria
– No more than 100 stockholders allowed
– Stockholders must be individuals, estates, or certain trusts
Limited-liability company (LLC)
Form of business ownership that combines the benefits of a corporation and partnership but avoids some of the restrictions and disadvantages
Limited-liability company (LLC) Advantages
– Avoids double taxation of a corporation
– Retains the corporation’s legal benefit of limited liability
– Provides more management flexibility
Difference between LLC and S-corporation
– LLCs not restricted to 100 stockholders
– LLCs have fewer restrictions on who can be a stockholder
Not-for-profit corporations
Corporations organized to provide social, educational, religious, or other services, rather than to earn a profit
Joint ventures
Agreements between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time

Example: Walmart and India’s Bharti Enterprises

Temporary associations of individuals or firms organized to perform a specific task that requires a large amount of capital

Most commonly used to underwrite large insurance policies, loans, and investments

the purchase of one corporation by another; essentially the same as an acquisition

EX: American Airline & US Airways

Horizontal mergers
– Mergers between firms that make and sell similar products

• Subject to approval by federal agencies to protect competition

Vertical mergers
– Mergers between firms that operate at different but related levels of production and marketing of a product

• Usually one firm is a supplier or customer of the other

Conglomerate mergers
• Mergers between firms in completely different industries
In the United States, the form of business ownership that generates the largest amount of sales revenues is the. .. . . . . . . .

sole proprietorship.
limited-liability company.

Unlimited liability
Which of the following is not an advantage of a sole proprietorship?

No special taxes
Pride of ownership
Retention of all profits
Unlimited liability

limited partnership.
A business co-owned by one or more general partners who manage the business and limited partners who invest money into it is called a. . . .

not-for-profit partnership.
limited partnership.
general partnership.
limited-liability company.

A corporation that received its corporate charter in California and is doing business in Oregon is called a(n) ____________ corporation in Oregon.


horizontal merger
A ____________ is a merger between firms that make and sell similar products or services in similar industries.

horizontal merger
vertical merger
conglomerate merger
hostile takeover
tender offer

Small Business
-one that is independently owned and operated FOR PROFIT and IS NOT dominant in its field
Primary reasons for the failure of a business (2)
Lack of Business know-how
Why do some Industries attract Small Business? (2)
Require low initial investment
Some special skills/knowledge
What are the 3 Categories of business?
Retail, whole-sale, transportation
Concerned with the movement of goods from producers to consumers
33% of all small business
Distribution Industry
What kinds of industries can be found here?
What is it concerned with?
What % of the small business does this industry account for?
Hairdresser, medical/dental care – NON-FINANCIAL CARE
48% of all small business
Service Industry
What kinds of industries can be found here?
What % of the small business does this industry account for?
Construction, mining manufactures
19% of all small business
Production Industry
What kinds of industries can be found here?
What % of the small business does this industry account for?
entrepreneurial spirit
Characteristic of Entrepreneurs
-the desire to create a new business
-desire for independence!
Capital, Management, and Planning
Over expansion
Why do some entrepreneurs and small businesses fail?
Providing Technical Innovation
Providing Employment
Providing Competition
Filling Needs of Society and other Business
What are the importances of Small Business in our society? (4)
Personal relationships with
customers and employees

Ability to adapt to change

Simplified recordkeeping


What are the PROS of small business?
Risk of failure
Limited potential
Limited ability to raise capital
What are the CONS of small business?
Business Plan
What are the 3 basic purposes?
– a carefully constructed guide for starting a business

-communication, management, planning

**Small Business Administration**
A governmental agency that assists, counsels, and protects the interests of small business in the U.S.
Service Corps of Retired Executives (SCORE)

Small Business Institutes (SBI’s)

What are the 2 SBA management assistances?
Service Corps of Retired Executives (SCORE)
group of BUSINESS PEOPLE who volunteer their services to small business through the SBA
Small Business Institutes (SBI’s)
groups of SENIOR/GRADUATE STUDENTS in business administration who provide management counseling to small business
What are the 4 terms within Franchising?
A license to operate an individually owned business
as though it were part of a chain of outlets or stores
The actual granting of a franchise
An individual or organization granting a franchise
A person or organization purchasing a franchise
A manufacturer authorizes retailers to sell a certain brand-name item e.g. Honda, Toyota car manufacturers

producer licenses distributors to sell a product to retailers e.g. Coca Cola, Pepsi

franchisor supplies brand names, techniques, or services instead of a complete product e.g Subway.

What are the 3 types of franchising?
Dual-branded franchising
two franchisors offer their products together, is a new trend
Too rapid expansion, inadequate capital or management skills
What can cause a franchise to fail? (3)
• Fast and well controlled distribution of its products
• No need to construct and operate its own outlets
• More working capital • available for expanded production and advertising •
• Franchising agreements maintain product and quality standards
• Motivated work force of franchisees
PROS of Franchising to the franchisor?
Opportunity to start a proven business with
limited capital
Guaranteed customers
Franchisor available for advice and guidance
Materials for local promotional campaigns and participation in national campaigns
Cost savings when purchasing in cooperation
PROS of Franchising To the franchisee?
Failure of the franchisee to operate franchise properly

Disputes with and lawsuits by franchisees over the terms of the franchise

Disadvantages of Franchising to the franchisor?
Franchisor retains a large amount of control over the franchisee’s activities

Franchisor opening competing franchises within the franchisee’s market

Disadvantages of Franchising to the franchisee?
The Internet
what is the favored strategy for growth for small businesses?
demographic and economic changes
what kind of changes must small businesses adapt to in the world market place?
D. Dry cleaning shop
1. Which one of the following would most likely be classified as a service industry?
A. Grocery store
B. Jewelry store
C. Pet shop
D. Dry cleaning shop
E. Clothing store
Roger Jones, a graduate business student, has decided to open his own consulting firm. Since he is an intelligent and hard-working student with previous management experience, Roger feels he is well prepared to succeed since more new businesses fail due to. . . . . .
A. a lack of adequate financing.
low consumer demand for their products.

B. hostile competition.

C. a lack of owner commitment.

D. mismanagement and lack of business know- how.

C. university-based group providing individual counseling and practical training to owners of small businesses
A Small Business Institute may be defined as
group of retired businesspeople who voluntarily offer their services to small businesses through the SBA.

A. group of active managers who voluntarily counsel small-business owners.

B. group of senior and graduate students in business administration who provide management counseling to small businesses.

C. university-based group providing individual counseling and practical training to owners of small businesses.

D. technical publication dealing with hundreds of topics of interest to present and prospective managers of small firms.

C. franchise.
A license to operate an individually owned business as if it were part of a chain of outlets or stores is called a
A. joint venture.
B. syndicate.
C. franchise.
E. small-business development center
B. the semiconductor industry.
Jim Moniz is contemplating obtaining a franchise. He would like to purchase a franchise in an industry that has had extensive success with franchising in the past. All of the following are possible choices for Jim except
A. a fast-food industry.
B. the semiconductor industry.
C. filling stations.
D. car dealerships.
E. the soft-drink industry.
COORDINATING an organizations people and resources to achieve the goals of the organization.
What are the 4 main resources of an organization??
Organizing the enterprise
Leading and motivating
Controlling Ongoing Activities
What are the 4 basic management functions?
Establishing organizational goals and deciding how to accomplish them
A statement of the basic purpose that makes
an organization different from others
Strategic planning
The process of establishing an organization’s
major goals and objectives and allocating the resources to achieve them
An end result that an organization is expected to
achieve over a one- to ten-year period
A specific statement detailing what an organization intends to accomplish over a shorter period of time
SWOT analysis (for organizational analysis)
The identification and evaluation of a firm’s
– Strengths
– Weaknesses
– Opportunities
– Threats
Core competencies
Approaches and processes that a company performs
well and may give it an advantage over its competitors
***What are the 4 types of plans?***
Strategic Plan
BROADEST plan, a guide for major policy setting
and decision making
Tactical Plan
A SMALLER SCALE plan to implement a strategy
Operational plan
A plan to implement a tactical plan
**Contingency plan**
A plan of alternative courses of action if the organization’s other plans are disrupted or become ineffective
The GROUPING OF RESOUCES AND ACTIVITIES to accomplish some end result in an efficient and effective manner
INFLUENCING PEOPLE to work toward a common goal
Providing reasons for people to work in the best interests of an organization
The combined processes of leading and motivating
to ensure that goals are achieve
Top Manager
Middle Manager
First Line Manager
What are the 3 levels of management?
Middle Manager
implements the strategy and major policies developed by top management
Top Manager
GUIDES AND CONTROLS the overall fortunes of an organization
First-Line Manager
COORDINATES AND SUPERVISES the activities of operating employees
? Financial managers
? Operations managers
? Marketing managers
? Human resources managers
? Administrative managers (general managers)
What are the 5 Areas of Management Specialization?
-Responsible for an organization’s financial resources

-Manage the systems that convert resources into goods and services

-Responsible for facilitating the exchange of products between an organization and its customers or clients

Human resources
-Manage an organization’s human resources programs

Administrative managers (general managers)
-Not associated with any specific functional area; provide overall administrative guidance and leadership

What is the job of each of the 5 areas of management?
-Conceptual skills
Ability to think in abstract terms

-Analytic skills
Ability to identify problems, generate alternative
solutions, and select the best solution

– Interpersonal skills
Ability to deal effectively with other people

-Technical skills
Needed to accomplish a specialized acti

What are the 5 key skills of successful managers?
Managers MAINTAIN a work environment, Leaders INFLUENCE others to work towards the same objectives/goals
What is the difference between Leaders and Managers?
Audit your company cultures.

Stay informed—informed people don’t fear change.

Beware of “aspirational” accounting. (Enron)

Empower your people—turn them loose. Prevent erosion of human assets.

Be generous with what you know

What are the rules for leaders?
The ability to INFLUENCE others
What are the 3 types of leadership?
Choosing an alternative that is not the best possible solution, but one that adequately solves the problem
– A “positive” problem
? Identifying the problem or opportunity
? Generating alternatives
? Selecting an alternative
? Implementing and evaluating the solution
***What are the 4 steps to decision making?***
The coordination of efforts directed at
– Improving customer satisfaction
– Increasing employee participation
– Strengthening supplier partnerships
– Facilitating an organizational atmosphere of continuous quality improvement
****What is Total Quality Management (TQM)****
D. Human
People in an organization are what type of resource?
A. Material
B. Informational
C. Inventory
D. Human
E. Financial
B. establish goals.
In executing their functions, managers must first
A. organize activities.
B. establish goals.
C. motivate employees.
D. evaluate activities.
E. select employees.
C. decisional
Roles such as entrepreneur, disturbance handler, and resource allocator are types
of _______ roles.
A. interpersonal
B. informational
C. decisional
D. leadership
E. ownership
A. laissez-faire.
One type of leadership style is
A. laissez-faire.
C. entrepreneur.
D. negotiator.
E. bureaucratic
C. unpredictability on Wall Street.
All of the following are reasons for a greater focus on quality by U.S. firms except
A. competition from foreign firms.
B. customers that are more demanding.
C. unpredictability on Wall Street.
D. poorer financial performance.
E. reduced market share.

Need essay sample on "Foundation of Business Ch 4-6"? We will write a custom essay sample specifically for you for only $ 13.90/page

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
Complete Buyer Protection
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy