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25 Cards in this Set

  • Front
  • Back
3 types of business organizations:
1. proprietorship
2. partnership
3. corporation
Proprietorship
(4)
1. also known as sole proprietorship
2. a business owned by one person who is usually both the manager and the owner
3. most common form of business operation
4. the sole proprietor shoulders all responsibilities and suffers all losses
Advantages of sole proprietorship
(6)
1. Ownership of all profits
2. Ease of organization
3. Freedom of action
4. Minimum of legal restrictions
5. Maximum personal incentive
6. No tax on the business entity
Disadvantages of sole proprietorship
(3)
1. Unlimited liability for business debts
2. Limited capital resources
3. Business ends with the death of owner
Partnership
(2)
1. when two or more people combine assets and skills and become joint owners in a single business
2. a partnership agreement is essential but not a legal requirement
Articles of partnership
(2)
1. a partnership agreement
2. contains all the terms pertinent to the formation, operation, and dissolution of the partnership
Advantages to partnerships
(7)
1. Larger capital resources
2. Better credit standing
3. More managerial talent
4. Few legal restrictions
5. High degree of personal incentive
6. No tax on business entity
7. Ease of dissolution
Disadvantages to partnerships
(3)
1. Unlimited liability for business debt
2. Partnership ends with death or withdrawal of any partner
3. Restricted transfer of business ownership
Corporation
(3)
1. is a legal entity
2. is an entity distinct from its owners
3. has continuous existence
Is a legal entity
A corp is a legal entity and may come into existence only by the sanction of a state
An entity distinct from its owners
(2)
1. a corp is a legal entity in and of itself, separate and distinct from its owners
2. its owners are stockholders
Continuous existence
A corp has continuous existence independent of the existence of its members
Articles of incorporation
(2)
1. corps must seek approval to operate
2. State or Federal authories grant permission after review of the requesting organization's articles of incorporation
Corporate charter
A certified copy of the articles of incorporation
Advantages of corporations
(7)
1. Very large capital resources
2. Limited liability for stockholders
3. Ease of transfer of ownership
4. Long or perpetual life
5. Ease of expansion
6. Legal entity distinct from others
7. Some federal tax incentives
Disadvantages of corporations
(4)
1. Tax on business income
2. Expenses of incorporation
3. Limited personal incentive possible
4. Extensive legal restrictions and regulations
Other, less common, business organizations
(3)
1. limited partnership
2. shell corporation
3. limited liability corporation
Limited partnership
Permits partners to limit their risk of loss on their investment to the amount of their investment
** at least one general partner must assume unlimited liability
Shell corp
A corp that has not assets or liabilities
Limited liability corporation
(2)
1. Limits the amount an investor can lose resulting from a lawsuit against the corporation or other loss suffered by the corporation
2. the corp's obligations are limited to its assets
Accounting
(df)
The system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results
Auditing
Analyzing accounting records is known as auditing
Audit techniques are based on 3 action words:
1. analyze
2. scrutinize
3. compare
Fraud investigations usually are initiated when...
several small events, taken together, point to a possible pattern of deception
Some indicators that may signify that financial fraud is taking place include:
1. See page 138
2. or see the power point slides entitled, "Badges of Fraud"