10 Questions
What was Procter's suggestion to his brothers-in-law?
To form a corporation
Which of the following is NOT a characteristic of a small business?
Dominant in its field
What is the primary way corporations grow?
Through internal expansion
What is a tender offer in the context of mergers and acquisitions?
An offer to purchase stock at a premium price
What is an advantage of small businesses?
All of the above
What is a hostile takeover in the context of mergers and acquisitions?
A situation in which the management and board of directors disapprove of the merger
What is a characteristic of distribution industries?
They concern with the movement of goods from producers to consumers
What is a benefit of corporate ownership structures?
They provide limited liability
What is a strategy for corporate growth?
Growth through expansion of present operations
What is a role of small businesses in the economy?
They fill the needs of society and other businesses
Study Notes
Partnership Agreements
- A partnership agreement outlines the terms of the partnership, including decision-making processes, duties, investments, profit/loss distribution, and dissolution procedures.
- It is common to have a third-party witness involved in the agreement.
Forms of Business Ownership
- A corporation is a legal entity separate from its owners, with rights and responsibilities similar to individuals.
- Corporations can enter contracts, borrow/loan money, sue/be sued, hire employees, own assets, and pay taxes.
Corporation Ownership
- The ownership of a corporation is represented by shares of stock, and those who own the shares are called stockholders or shareholders.
- There are two types of corporate ownership: closed corporations (stock is owned by a few people and not publicly traded) and open corporations (stock is publicly traded).
Stockholder Rights
- Common stockholders have voting rights, but their claims on profits/dividends are subordinate to those of preferred stockholders.
- Common stockholders can vote by proxy, allowing them to transfer their voting rights to others.
- Preferred stockholders usually do not have voting rights, but their claims on dividends are paid before those of common stockholders.
Corporate Structure
- The board of directors is the top governing body of a corporation, responsible for setting corporate goals and strategies.
- Corporate officers, appointed by the board of directors, are responsible for implementing strategies and directing the corporation.
Advantages and Disadvantages of Corporations
- Advantages: limited liability, ease of raising capital, ease of transferring ownership, perpetual life, and specialized management.
- Disadvantages: difficulty of formation, government regulation, conflict with the corporation, double taxation, and lack of secrecy.
Comparison of Business Ownership Forms
- Sole proprietorships, general partnerships, and corporations differ in their protection against liability, ease of raising money, ownership transfer, and government regulations.
Corporate Growth
- Larger firms generally have greater sales revenue and profit, facilitating growth.
- Two strategies for corporate growth are growth from within (expanding present operations) and growth through mergers and acquisitions.
Small Businesses
- A small business is an independently owned and operated business for profit, not dominant in its field.
- Small businesses are important for providing technological innovation, employment, competition, and fulfilling societal needs.
The Importance of Small Businesses
- Small businesses produce more innovations relative to the number of employees compared to large firms.
- They provide employment, competition, and fill needs that others cannot.
Learn about the different forms of business ownership, including partnerships and corporations, and understand the importance of partnership agreements.
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