Page 168 - Business Principles and Management

C HAPTER 6 A SSESSMENT

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CHAPTER CONCEPTS

• A corporation is a form of ownership preferred by large and growing
firms. Corporations are more difficult to form than sole proprietor-
ships or partnerships. A business must specify its purpose, identify its
owners (stockholders), elect a board of directors, select officers, estab-
lish operating policies, and prepare a charter for approval by the state.
• The chief advantages of corporations are that liability is limited, more
capital can be raised for growth, stock can be bought and sold more
easily than ownership shares in partnerships, and the life of the corpo-
ration does not end when owners sell their shares.
• The chief disadvantages of corporations include higher tax rates, double
taxation, and more extensive record keeping and government-required
paperwork.

• Joint ventures are alliances formed among companies to produce a
product or service that neither alone could provide efficiently. A virtual
corporation is a type of joint venture in which a network of companies
form temporary alliances among themselves as needed to take advan-
tage of current market conditions. Cooperatives, such as credit unions,
are businesses owned and operated by their user-members for the pur-
pose of supplying themselves with goods and services.

• Limited liability companies (LLC) and Subchapter S corporations
avoid double taxation and the unlimited-liability disadvantage of
partnerships. Nonprofit corporations do not pay taxes and do not
exist to make a profit. Quasi-public corporations are important to
society but are government-run because they lack the profit poten-
tial to attract private investors.

REVIEW TERMS AND CONCEPTS

Write the letter of the term that matches each definition. Some terms will
not be used. a. board of directors
1. State document granting corporate status b. charter
2. Ruling body of a corporation c. close corporation
3. Owners of a corporation d. cooperative
4. Written authorization to vote on behalf of a person e. dividends
f. joint venture
5. Formal summary of the chief features of the business and its stock g. limited liability
offering company
6. Agreement among two or more businesses to work together to h. nonprofit corporation
provide a good or service i. officers
7. Organization that does not pay taxes and does not exist to make j. open corporation
a profit k. prospectus
8. Corporation that offers its shares of stock for public sale l. proxy
9. Corporation that does not offer stock for public sale m. stockholders
10. Profits that are distributed to stockholders on a per-share basis n. virtual corporation
11. Top executives who are hired to manage the business
12. Special type of corporation that is taxed as if it were a sole propri-
etorship or partnership

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