Intro To Business Chapter 5

Front 1

Major Forms of Ownership

Back 1

Sole Proprietorship, Partnership, and Corporation

Front 2

Sole Proprietorship

Back 2

a business owned, and usually managed, by one person

Front 3

Partnership

Back 3

Two or more people legally agree to become co-owners of a business

Front 4

Corporation

Back 4

a legal entity with authority to act and have liability apart from its owners

Front 5

Benefits of Sole Proprietorship

Back 5

ease of starting and ending the business, being your own boss, pride of ownership, leaving a legacy, retention of company profit, no special taxes

Front 6

Disadvantages of Sole Proprietorship

Back 6

unlimited liability, limited financial resources, management difficulties, overwhelming time commitment, few fringe benefits, limited growth, limited life span

Front 7

General Partnership

Back 7

all owners share in operating the business and in assuming liability for the business’ debts

Front 8

Limited Partnership

Back 8

a partnership with one or more general partners and one or more limited partners

Front 9

General Partner

Back 9

an owner (partner) who has unlimited liability and is active in managing the firm

Front 10

Limited Partner

Back 10

a owner who invests money in the business, but enjoys limited liability

Front 11

Limited liability

Back 11

liability for the debts of the business is limited to the amount the limited partner puts into the company, personal assets are not at risk

Front 12

Master Limited Partnership

Back 12

a partnership that looks much like a corporation, but is taxed like a partnership and thus avoids the corporate income tax

Front 13

Limited Liability Partnership

Back 13

limits partners’ risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision

Front 14

Advantages of Partnerships

Back 14

more financial resources, shared management and pooled/complementary skills and knowledge, longer survival, no special taxes

Front 15

Disadvantages of Partnerships

Back 15

unlimited liability, division of profits, disagreements among partners, difficult to terminate

Front 16

Conventional Corporations (CC)

Back 16

a state-chartered legal entity with authority to act and have liability separate from its owners (its stakeholders)

Front 17

Advantages of Corporations

Back 17

limited liability, ability to raise more money for investment, size, perpetual life, ease of attracting talented employees, separation of ownership from management

Front 18

Disadvantages of Corporations

Back 18

initial cost, extensive paperwork, double taxation, two tax returns, size, difficulty of termination, possible conflict with stockholders and board of directors

Front 19

Who can incorporate?

Back 19

anyone (truckers, doctors, small business owners) stock is not issued to outsiders then individuals incorporate, so the advantages and disadvantages are not exactly the same as for larger corporations (limited liability and tax benefits)

Front 20

B-corporations

Back 20

judged on how they meet their own set of socially or environmentally beneficial goals

Front 21

S-corporations

Back 21

a unique government creation that looks like a corporation, but is taxed like sole proprietorships and partnerships (have shareholders, directors, and employees, plus the benefit of limited liability) (profits taxed only as the personal income of the shareholder)

Front 22

Who can form S-corporations?

Back 22

<100 shareholders, shareholders are individuals or estates and citizens or permanent residents of the U.S., have only one class of stock, derive no more than 25% of income from passive sources (if a S-corporation loses its S status, it may not operate under it again for at least 5 years)

Front 23

Limited Liability Company (LLC)

Back 23

similar to an S-corporation, but without the eligibility requirements

Front 24

Advantages of LLCs

Back 24

limited liability, choice of taxation, flexible ownership rules, flexible distribution of profits and losses, operating flexibility

Front 25

Disadvantages of LLCs

Back 25

no stock (ownership is nontransferable), limited life span, fewer incentives, taxes, paperwork

Front 26

Merger

Back 26

result of two firms joining to form one company

Front 27

Acquisition

Back 27

one company’s purchase of the property and obligations of another company

Front 28

Vertical Merger

Back 28

the joining of two firms in different stages of related businesses

Front 29

Horizontal Merger

Back 29

the joining of two firms in the same

Front 30

Conglomerate Merger

Back 30

the joining of firms in completely unrelated industries

Front 31

Leveraged Buyout (LBO)

Back 31

an attempt by employees, management or a group of investors to buy out the stockholders in a company

Front 32

Franchise Agreement

Back 32

an agreement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory

Front 33

Advantages of Franchising

Back 33

management and marketing assistance, personal ownership, nationally recognized name, financial advice and assistance, lower failure rate

Front 34

Disadvantages of Franchising

Back 34

large start-up costs, shared profit, management regulation, coattail effects, restrictions on selling, fraudulent franchisors

Front 35

Home-based Franchises

Back 35

Advantages = relief from commuting stress, extra family time, low overhead expenses Disadvantages = isolation, long hours

Front 36

Cooperatives

Back 36

businesses owned and controlled by the people who use them – producers, consumers, or workers with similar needs who pool their resources for mutual gain (members democratically control the business by electing a board of directors that hire professional management)