3. Review Questions

1. What is an economic entity? Name the three basic forms of business ownership.

2. What is a sole proprietorship? Why is it the most common type of business organization?

3. What are the advantages and disadvantages of a sole proprietorship?

4. Define the partnership form of organization. Explain the difference between a general and a limited partnership.

5. How does a limited liability partnership differ from a general partnership and a limited partnership?

6. What is a corporation? Why is it considered a separate legal entity?

7. Describe the advantages and disadvantages of corporations.

8. What is the difference between common stock and preferred stock? Would you rather own preferred stock or common stock? Why?

9. Name the major types of corporations.

III. Vocabulary practice exercises

1. Match the terms on the left with their definitions on the left.

1. sole proprietorship 2. general partnership 3. limited partnership 4. limited liability partnership 5. corporation 6. stock 7. board of directors 8. chief executive officer 9. unlimited liability 10. economic entity

a. shares in the company b. the legal obligation to pay all one’s debts c. any organization or unit in society operating a business d. a business in which each partner has unlimited liability for the debts of the business e. a legal entity whose ownership is separate from its owners f. a business that has at least one general partner and one or more limited partners g. person appointed by the board of directors to supervise the activities of the corporation h. a partnership in which all partners may have limited liability i. the governing body of a corporation j. a business owned and operated by one person

2. Choose the necessary word or word-combination and put it in a sentence.

partnership’s agreement unlimited liability private corporation stock general partners

limited partners incorporate parent company life span flexibility

subsidiaries corporate officers income tax managing chief executive officer

1. A sole proprietor has an advantage of ----------. He can make management decisions without consulting others and take prompt action when needed.

2. Profits from the business are considered personal income to the sole proprietor. The owner pays one ----------.

3. ---------- means that any damages or debts of the business can be attached to the owner.

4. It is always wise to get a lawyer’s advice on the ---------- - the legal document that spells out the partners’ rights and responsibilities.

5. In a limited partnership, ---------- have no voice in the management of the business and their liability is limited to their investment in the business. The ----------- have unlimited liability for the debts of the business, but they receive the larger share of profits.

6. Sole proprietorships often have a limited ----------, in other words the business may cease when the owner dies.

7. A company needn’t be large to ----------. Most corporations are relatively small, and most small corporations are privately held, which means that the company’s ---------- is not traded publicly.

8. Stockholders elect a ---------- - the governing body of a corporation.

9. An important duty of the board of directors is to hire ----------, such as the president and the ----------, who are responsible to the directors for the management and daily operations of the firm.

10. General Electric is a large ----------, having 27 subsidiaries.

11. Coca-Cola, the world’s No. 1-ranked beverage company, has its ---------- in over 200 countries.

12. A ---------- is owned by just one or a few people who are closely involved in ---------- the business. These people, often a family, own all the corporation’s stock, and no stock is sold to the public.

3. Replace the underlined words or phrases with their equivalents given below:

disadvantage; to launch; to disclose; personal assets; crucial; key; to be responsible for; option; stockholders; dividends; legal entities; corporations; incorporation; secrecy; life span;

1. All you have to do to start a sole proprietorship is to obtain any necessary licenses and open a checking account for the business.

2. As a sole proprietor, you also have the advantage of privacy; you do not have to open your performance or plans to anyone.

3. If the business cannot pay its creditors, the owner may have to sell personal, nonbusiness holdings such as a car or a home to pay off the debts.

4. The owner’s unique skills may be decisive to the successful operation of the business.

5. The life expectancy of a sole proprietorship is directly related to that of the owner and his or her ability to work.

6. Another variant for organizing a business is to form a partnership.

7. In a partnership, interpersonal problems often arise because each partner wants to be in charge of managing the business.

8. A fundamental drawback of a general partnership is the unlimited liability of the active partners.

9. A basic element of any partnership’s agreement is the buy/sell agreement.

10. The holders of the shares enjoy limited liability.

11. Corporations can enter into contracts with individuals or with other businesses.

12. Most of the dollars you spend as a consumer probably go to incorporated businesses.

13. Much paperwork and high costs are associated with creating a corporation.

14. Owners of common stock are last to receive any income distributions.

15. Corporations have to reveal financial information to the public and to government agencies.

4. Find the pairs of opposites:

1. the easiest a. to maximize

2. advantage b. cheap

3. to hire c. illegal

4. to expand d. to buy

5. best of all e. losses

6. secrecy f. to be sued

7. higher g. the most complex

8. to minimize h. private

9. competitor i. to disclose a secret

10. limited j. disadvantage

11. to sell k. lower

12. legal l. to contract

13. profits m. to fire

14. active n. worst of all

15. to sue o. unlimited

16. expensive p. partner

17. public q. publicity

18. to keep a secret r. passive