An American restaurant owner convinces several friends to help him pay the costs to open a second location. If the new restauran
t succeeds, the owner and his friends will share the profits. If it fails, however, all of them will split the losses. This situation is most similar to which of the following? A. The creation of a joint stock company B. The expansion of the consumer market C. The regulation of businesses under mercantilism D. The changing of prices according to supply and demand
The correct answer is A) The creation of a joint stock company .
This situation is most similar to the creation of a joint stock Company.
In this business association, the owner and his friends will share the profits, but if it fails, they will split the losses.
A joint-stock company is a form of business association or business entity where the shareholders buy and sell shares of the company's stock. If the Company has profits, all the shareholders split the dividends. But if the Company has losses, all the shareholders assume the loss.
In order to grow the business, one of the financing options the owner has in order to fulfill this project is to search for partners that would invest in the business. This is a good option because, even though it might reduce the owner's potential profits, it also diminishes the risk that involves an eventual failure of the project.
In a major scale, the owner may opt to execute an IPO (Initial Public Offering), in which the company emits stocks that sell at an initial price and are offered to the public. Stocks are a percentage of the ownership of the company and are also an effective way to raise funds.
