MGT100 EXAM STUDY GUIDE

Wealth creation - Answer- Develop a product that you sell for more than it cost Trade with economics that will pay for what you have and sell you what you want Sole proprietorship - Answer- One person who owns and operates the business Pros: bear all the benefits Cons: bear all the risks Partnership - Answer- More than one owner Pros: don't bear all the risks Cons: don't bear all the benefits Corporation - Answer- Separate legal entity (you buy property under the name of the corporation and the corporation name gets sued) Pros of corporation - Answer- Limited liability Have more investors (more money and brainpower) Banks are more willing to loan out money to you You can attract better talent Tax deferred until you take them out Easy to transfer ownership Raise more money through the sale of shares Cons of corporation - Answer- Double taxation More paperwork More people is more conflict More difficult to terminate Risk of dilution of ownership Common shareholders - Answer- Real residual owner of the business, only ones who can vote for the board of directors They stand to gain the most and they stand to lose the most Preferred shareholders - Answer- When dividends are declared they get it before Redeemable shareholders - Answer- You can get money back for your share (option of shareholder) Participating - Answer- May be group in with common shareholders and get some of the leftovers