ECONOMICS BOOK CHAPTER 4-Forms of business ownership and sources of finance

Who can own a business?

One person, multiple people, another business

What are important tasks of a manager?

developing objectives for the business, identifying measures to achieve them, planning and organising business activities as well as monitoring and steering the business

Can businesses change their legal structure?

Yes, businesses often change their legal structure to gain acces to more financial options

What is a sole proprietorship/sole trader?

A sole proprietorship is a business that is owned by one person who also manages and runs the business

What are the financial requirements to establish a sole proprietorship?

There are no financial requirements for a sole proprietorship

Is a sole porprietorship a legal entity of its own?

The business is not a legal entity of its own

Where are the profits of a sole proprietorship reported?

On the personal income tax statement of the owner

Who pays the taxes of a sole proprietorship?

The owner, not the business.

Whose job is it to make the most important decisions of a sole proprietorship?

The owner's, regardless of the business' personell

Can the owner of a sole proprietorship hire personell?

Yes, they can

What does a SP's financing depend on?

The finances of the owner.

What are the options of finance for a SP?

savings of the owner, investors, banks

What are external sources of finance?

owner's investment and financial funds from other investors and creditors

What is short-term credit?

the credit's duration is less than a year

Who is a creditor?

Someone who loans money

What is a mortgage?

a long-term bank loan that is often based on land and property as collateral

What are the most common forms of short-term credit?

bank overdraft and trade credit

Bank ovedraft

once the bank account has been opened, the sole proprietor can withdraw money from the account when it is needed. Interest is only paid when the account is overdrawn.

What is trade credit?

The practice of buying goods or services now and paying for them later.

Whose liabilities are credits in a SP?

The owner's

What are internal sources of finance?

If revenues exceed expenses, the business makes a profit that can be retained and reinvested in the business, or the sale of assets that are not needed anymore

Partnership/OG/Offene Gesellschaft?

If two or more persons jointly found a business, this business is called a partnership

What is in a partnership agreement?

the rights and responsibilities as well as the division of profits and losses

General Partnership

In a general partnership all partners have equal rights, liabilities and responsibilities

Unlimited liability

Each of the partners is solely liable for all debts of the business

Limited partnership/KG/Kommanditgesellschaft

In a limited partnership there is at least one partner who is not involved in the management of the business and this person's liability is limited to the amount of money that he or she has contributed to the business

Corporation

A business that is a legal entity of its own.

A business is a legal entity

they have the same rights and obligations as people: legal persons can - just like natural persons - own land and property, hire people, close contracts, sue and be sued

Who is a corporation managed by?

board of directors

Who are the board of directors?

members elected by the shareholders to see that the company is being run according to their interests

Who is the highest ranking manager of the board of directors?

Chief Executive Officer (CEO)

What is share capital?

The capital of a corporation which id divided into shares

How and when can shares be bought?

Shares can be bought either at the time they are initially issued by the corporation or later on from some other shareholder who sells his shares

Is share capital redeemed by the company?

Share capital is usually not redeemed by the company. It is long-term capital or even permanent capital

What is the stock market?

A stock exchange is a financial market, regulated by the authorities, where shares and other securities (e.g. bonds) can be easily bought and sold by lots of people and businesses