Chapter 5

1.      What are sole proprietorships? Provide an example. 

Sole proprietorships are businesses owned by an individual. EX would be a cleaning service owned by one individual.

2.      Define the partnership form of business organization. What are its advantages? 

The partnership forms of business organization are two or more people who carry on as co-owners of a business for a profit.  They are the least used form of business.  Advantages are starting a partnership requires no more than drawing up articles of partnership, partnerships grow to be larger than sole proprietorships which earn more power and better credit ratings also for tax purposes the tax is lower.

3.      How do preferred stockholders differ from the common stockholders of a corporation? 

Preferred stockholders are a special class of owners because although they generally do not have any say in running the company, they have a claim to any profits before any other stockholders do.  Common stockholders do not get such treatment with regard to dividends, they do get some say in the operation of the corporation; vote for members of the board.

4.      What is a leveraged buyout? What are some of the advantages of mergers and acquisitions? 

A leveraged buyout is when a group of investors borrows money from banks and other institutions to acquire a company, using the assets of the purchased company to guarantee repayment of the loan.  Advantages of mergers and acquisitions are acquisitions sometimes involve the purchase of a division or some other part of a company rather than the entire company.