Chapter 8 Packet Notes

Question 1

• Management team
• Characteristics of a strong management team
• Team building and structure

Answer 1

Building a Management Team

Question 2

Managers and other key persons who give a company its general direction.

Answer 2

Management Team

Question 3

• Capable of securing the resources needed to make the business a success.
• Reassures investors about their investment and the continuity of business.
• Diversity of talent makes the team stronger than an individual entrepreneur.

Answer 3

Characteristics of a Strong Management Team

Question 4

• The required combination of education and experience depends on the type of business and the nature of its operations.
• The key: Achieving a balance of skills and compentencies in functional areas.
• Designing an internal management structure that defines relationships and responsibilities.
  
  • Outside professional support can supplement the skills of a management team.
  • An active board of directors can provide counsel and guidance.

Answer 4

Team Building and Structure

Question 5

• Achieving balance
• Expanding social networks
• Team building and structure
• Specifying structure

Answer 5

Building a Management Team (More)

Question 6

A business owned by one person, who bears unlimited liability for the enterprise.

Answer 6

Sole Proprietorship

Question 7

• Recieves all of the firm’s profits
• Holds title to all the firm’s assets
• Can easily sell or transfer ownership of the company name and assets.
• Requires no registration or filing fee.
• Has absolute freedom from interference by other stakeholders.

Answer 7

Advantages of Sole Proprietorship

Question 8

• Bears all business risk
• Is subject to all claims of creditors
• Has unlimited personal liability for business.
• Recieves no tax free benefits as an employee.
• Death/incapacity of owner terminates personal capital
• Is taxed on business income as personal income.

Answer 8

Disadvantages of Sole Proprietorship

Question 9

A legal entity formed by two or more co-owners to carry on a business for profit.

Answer 9

Partnership

Question 10

• Required: Of legal age to contract
• Desired: Honest, healthy, capable, and compatible.

Answer 10

Partner Qualifications

Question 11

• What is our business concept?
• How are we going to structure ownership?
• Why do we need each other?
• How do our lifestyles differ?

Answer 11

Questions about Partnership Formation

Question 12

• Choose your partner carefully
• Be open, but cautious, about partnerships with friends.
• Test-drive the relationship, if possible.
• Create a combined vision for the business.
• Prepare for the worst.

Answer 12

Partnership Insights

Question 13

• Sharing workload
• Sharing emotional burden
• Procuring executive talent not otherwise affordable.
• Sharing financial burden
• Companionship

Answer 13

Advantages of Partnerships

Question 14

• Interpersonal conflicts
• Dissatisfaction with partner
• Absence of one clear leader
• Dilution of equity
• Frustration of not being able to call one’s own shots.

Answer 14

Disadvantages of Partnership

Question 15

• Partnership agreement
• Joint and Several Liability
• Termination of Partnership

Answer 15

Rights and Duties of Partners

Question 16

A document that states explicitly the rights and duties of partners.

Answer 16

Partnership Agreement

Question 17

The liability of each partner resulting from any one partner’s ability to legally bind the other partners.

Answer 17

Joint and Several Liability

Question 18

Provisions for rapidly responding to death or departure of a partner.

Answer 18

Termination of a Partnership

Question 19

A business organization that exists as a legal entity and provides limited liability for its owners.

Answer 19

Corporation

Question 20

A business organization recognized by the law as having a separate legal existence (“artificial being”); can be sued, hold property, and incur debt.

Answer 20

Legal Entity

Question 21

An ordinary, or regular, corporation chartered by the state and taxed by the federal government as a separate legal entity.

• No new business can start as this

Answer 21

C Corporation

Question 22

• Name of company
• Formal statement of formation
• Type of business
• Location
• Duration
• Classes and preferences of stock
• Number and per value of authorized shares
• Voting privileges for each class of stock
• Names of incorporators and directors
• Capital stockholders
• Statement of limited liability for stockholders
• Statement of directors’ powers

Answer 22

Articles of Incorporation

Question 23

• Stock certificate
• Pre-emptive right
• Legal Status

Answer 23

Rights and Legal Status of Stockholders

Question 24

A document specifying the number of shares of stock owned by a shareholder.

Answer 24

Stock Certificate

Question 25

The right of current stockholders to buy new shares of stock before they are offered to the public.

Answer 25

Preemptive Right

Question 26

* Ownership provides control over the firm. * Ownership limits liability to investment in the firm. * Ownership can be transferred without affecting the firm's operations.

Answer 26

Legal Status

Question 27

* Initial Organizational Requirements and costs * Liability of owners * Continuity of the business * Transferability of ownership * Management control * Attractiveness for raising capital * Income taxes

Answer 27

Factors Affecting the Choice of a Firm's Structure

Question 28

Rise as the formality of the organization increases. In a view of the relatively modest costs, however, this consideration is of minimal importance in the long run.

Answer 28

Initial Organizational Requirements and Costs

Question 29

* Self-employed persons are taxed on their busines incomes at tax rates set for individuals.

Answer 29

Federal Income Taxes- Sole Proprietorship

Question 30

The partnership does not pay taxes; allocated shares of income from partnership are taxed as personal income for each of the partners.

Answer 30

Federal Income Tax- Partnership

Question 31

As a separate legal entity, it reports its income and pays any taxes related to its profits; dividends paid to shareholders are taxed as personal income.

Answer 31

Federal Income Tax- Corporation

Question 32

* Piercing the Corporate Veil * Agency Principal

Answer 32

LIability of Owners

Question 33

A situation in which the courts conclude that incorporation has been used to perpetuate a fraud, skirt a law, or commit some wrongful act, and thus remove liability protections from the corporate entity.

Answer 33

Piercing the Corporate Veil

Question 34

* An employer is liabile for the actions of an employee while on company business. * Organizing as a corporation or limited liability company shields the personal assets of owners in agency cases.

Answer 34

Agency Principal

Question 35

* The limited partnership * The limited liability company * The professional corporation * The nonprofit corporation

Answer 35

Specialized Forms of Organization

Question 36

* General partner * Limited partners * Income (taxable) or losses

Answer 36

The Limited Partnership

Question 37

Active in the business, personally liabile for the debts of the business.

Answer 37

General Partner

Question 38

Not active in the business, liability limited to investment in business.

Answer 38

Limited Partner

Question 39

Apportioned to each partner in a limited partnership.

Answer 39

Income (Taxable) or Losses

Question 40

Stockholders have limited liability but pay personal income taxes on the business profits. * Easier to set up * More flexible * Tax advantages

Answer 40

The Limited Liability Company

Question 41

Protects licensed professionals from liability of partners but not their personal liability.

Answer 41

The Professional Corporation

Question 42

Serves civic, educational, charitable, or religious purposes but not for generation of profits.

Answer 42

The Nonprofit Corporation

Question 43

An organizational relationship that links two or more independent business entities in a common endeavor.

Answer 43

Strategic Alliances

Question 44

* Reduced cycle types through shared resources * Increased performance through synergistic combinations of financial resources and creativity.

Answer 44

Benefits of a Strategic Alliance

Question 45

Difficulty in establishing and maintaining alliances.

Answer 45

Risk of Strategic Alliances

Question 46

* Establish a healthy network of contacts * Identify and contact indiividuals within a firm who are likely to return your call. * Outline the partner's potential financial benefits from the alliance. * Learn to speak and understand the "language" of your partner. * Continue to monitor the progess of the alliance.

Answer 46

Steps in Building a Strategic Alliance

Question 47

The governing body of a corporation, elected by the stockholders. * Inside directors work for the firm. * Outside directors do not work for the firm.

Answer 47

Board of Directors

Question 48

* Elect the firm's officers (top management) * Approve top management's strategic plans and policies. * Review top management's performance. * Declare dividends

Answer 48

Duties of Directors

Question 49

Bring knowledge and experience. * Review policy decisions * Provide general direction * Monitor the firm's ethical behavior * Mediate and resolve disputes among top management

Answer 49

Contributions of Board of Directors

Question 50

The alternative to a board of directors: * Provides advice but does not have the fiduciary (money) responsibility for the direction of the firm. * May be less threatening and more cooperative than a board of directors.

Answer 50

Advisory Council