Chapter 8 Questions
1. B
2. D
3. A
4. C
5. E
When deciding to start a small business there are several different questions that
must be answered. However, one of the most important is what kind of company this is
going to be. Will it be a sole proprietorship or a joint venture, a partnership or a
corporation, there are advantages and disadvantages to each one. The advantages of a
sole proprietorship are that you personally will get all of the profits and you do not have
to consult any partners about your decisions. However there are several disadvantages
including: you alone get all of the losses and risks, and you must make all the decisions
including those you don't know much about. A partnership is advantageous because risks
and losses are shared however in a partnership there is a good chance that you will
disagree and you will also have to split the profits. If you don't want to work with your
partner for very long you might want to set up a joint venture where you only work
together for a set period of time. A limited partnership is good because in these
situations you typically get to make all of the decisions. However, you must also share in
the profits from all your hard work. If you find that you need more money for your
growing business you might consider forming a corporation. This is because when you
sell your stock you will raise capital for your business. The problem with a corporation is
that you may eventually lose control of the company and you must again share in all of
the profits. Franchises are a good decision if you don't want to have to wait for customers
to start coming in. The problem with a franchise is that you must always share some of
your profits with the franchise.
1. 2 elements every business must have are risk and advertising.
2. When you calculate your profits with the time you spent it's called an opportunity cost.
3. The most common business organization is a sole proprietorship.
4. The advantages of a sole proprietorship are you get all the profit and you alone are in
control of the business. The disadvantages are you take all of the risk and you don't share
your losses with anyone else.
5. If you need help starting a small business you could go to a small business incubator.
6. A partnership is one form of a business for 2 or more people.
7. A limited partnership is an unequal partnership and a joint venture is something that is
done for a short period of time.
8. You must register, sell stock, and elect a board of directors to become a corp.
9. The state grants corporate charters.
10. The stock holders in a corporation vote for the board of directors.
11. A franchise operates by one person buying the rights to use a businesses name and
selling their products.
Demonstrating Reasoned Judgment-When calculating the profits of a small business you
must also include the time you spent as an opportunity cost because you could have been
spending that time working for someone else for a better hourly wage.
Drawing Conclusions-When deciding what type of business to from you might choose a
partnership over a sole proprietorship because you don't have enough capital to start the
business on your own. You might also want to use the different expertise of your
different partners or might want to share in the risks involved.
Analyzing Information-Problems that might occur in a corporation because of its overall
structure are that you could end up with a constantly changing board of directors. This is
because with all of the shareholders the people running the company could be changed at
the first sign of weakness.