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20 Cards in this Set

  • Front
  • Back
Name four different types of firms (US)?
- Sole proprietorship
- Partnership
- Limited Liability Company
- Corporation
Name four different types of firms (SWE)?
- Enskild näringsidkare (sole trader)
- Handelsbolag (trading partnership)
- Kommanditbolag (limited partnership)
- Aktiebolag (limited company)
Explain the characteristics of sole proprietorship.
- Business is owned and run by one person
- Typically has few, if any, employees
- Advantages: easy to create
- Disadvantages: unlimited personal liability, limited life
Explain the characteristics of partnership.
- Similar to a sole proprietorship, but with more than one owner
- All partners are personally liable for all of the firm's debts
- A lender can require any partner to repay all of the firm's outstanding debts
- The partnership ends with the death or withdrawal of any single partner
Explain the characteristics of limited partnership. Two partners.
General partners:
- Have the same rights and liability as partners in a regular partnership
- Typically run the firm on a day-to-day basis
Limited partners:
- Have limited liability and cannot lose more than their initial investment
- Have no management authority and cannot legally be involved in the managerial decision making for the business
Explain the characteristics of limited liability company.
- All partners have limited liability but they can also run the business
- Relatively new business form in the US
Explain what is meant by "the corporation is a legal entity separate from its owners".
- The corporation has many of the legal powers individuals have such as the ability to enter into contracts, own assets, and borrow money
- The corporation is solely responsible for its own obligations
- Its owners are not liable for any obligation the corporation enters into
Explain the process of formation of a corporation.
- They must be legally formed
- The corporation files a charter with the state it wishes to incorporate in
- The state charters the corporation, formally giving its consent to the incorporation
Explain about tax implications.
- Double taxation
- "S" corporations: firm's profits are not subject to corporate income tax, but instead are allocated directly to the shareholders
Name two characteristics of the board of directors.
- Elected by shareholders
- Have ultimate decision-making authority
What is the task of a chief executive officer (CEO)?
Board typically delegates day-to-day decision making to CEO
Name four different decisions for the financial manager.
- Investment decisions - sale of real assets
- Financing decisions - sale of financial assets
- Capital budgeting decision - decision to invest in tangible or intangible assets
- Financial reporting
Name one goal within corporations.
Shareholders will agree that they are better off if management makes decisions that maximizes the value of their assets
Describe one agency problem.
Managers may act in their own interest rather than in the best interest of the shareholders.
Explain what is meant by hostile takeover.
Low stock prices may entice a corporate raider to buy enough stock to they have enough control to replace the current management. The stock price will rise after the new management team fixes the company. Shareholders will agree that they are better off if management makes decisions that maximizes the value of their assets
What happens when there is corporate bankruptcy?
- Reorganization
- Liquidation
What does the stock market provide?
Liquidity to shareholders.
Explain liquidity.
The ability to easily sell an asset for close to the price you can currently buy it for
Explain primary and secondary stock markets.
- Primary markets: when a corporation itself issues new shares of stock and sells them to investors, they to so on the primary market
- Secondary markets: after the initial transaction in the primary market, the shares continue to trade in a secondary market between investors
Name some of the largest stock markets.
- New York stock exchange
- NASDAQ