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39 Cards in this Set
- Front
- Back
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What are the 3 major forms of business ownership?
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1.) Sole proprietorships
2.) Partnerships 3.) Corporations |
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Sole Proprietorships
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Owned or managed by one person
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Partnership
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Running a business with co-owners (2 or more people)
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Corporation
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A legal entity with authority to act and have liability apart from its owners
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Advantages of a Sole Proprietorship
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-Ease of starting and ending the business
-Being your own boss -Pride of ownership -Leaving a legacy -Retention of company profits -No special taxes |
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Disadvantages of a Sole Proprietorship
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-Unlimited liability (the risk of personal losses)
-Limited financial resources -Management difficulties -Overwhelming time commitment -Few fringe benefits -Limited growth -Limited life span |
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Unlimited Liability
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Any debts or damages incurred by the business are your debts and you must pay them, even if it means selling your home, etc.
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Types of Partnerships
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1.) General
2.) Limited 3.) Master Limited |
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General Partnership
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All owners share in operating the business and in assuming liability for the business's debts
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Limited Partnership
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One or more general partners and one or more limited partners
General- Owner with unlimited liability and actively managing the firm Limited- Owner who invests money in the business but does not have management responsibility or liability for losses beyond his or her investment |
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Limited Liability
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The limited partners liability for the debts of the business is only limited to the amount that they put into the company; their personal assets are not at risk
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Master Limited Partnership
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Acts like a corporation dealing with stock exchanges but is taxed like a partnership avoiding corporate income tax (Normally gas and oil industry)
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Limited Liability Partnership
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Limits the partners risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision
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What are the 3 key elements of any partnership?
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1.) Common ownership
2.) Shared profits and losses 3.) The right to participate in managing the operations of a business |
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Advantages of Partnerships
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-More financial resources
-Shared management and pooled/complementary skills and knowledge -Longer survival -No special taxes |
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Disadvantages of Partnerships
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-Unlimited liability
-Division of profits -Disagreements among partners -Difficulty of termination |
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Conventional (C) Corporation
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A state-chartered legal entity with authority to act and have liability separate from its owners - its stockholders
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Advantages of Corporations
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-Limited liability
-Ability to raise more money for investments -Size -Perpetual life -Ease of attracting talented employees -Separation of ownership from management |
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Disadvantages of Corporations
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-Initial cost
-Extensive paperwork -Double taxation -Two tax returns -Size -Difficulty of termination -Possible conflict with stockholders and board of directors |
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S Corporation
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A government creation that looks like a corporation but is taxed like a sole proprietorship and partnership
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Criteria for S Corporations?
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1.) Have no more than 100 shareholders
2.) Have shareholders that are individuals or estates and who are citizens or permanent residents of the US 3.) Have only one class of stock 4.) Derive no more than 25 percent of income from passive sources |
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Limited Liability Companies (LLC)
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Similar to an S Corporation but without the special eligibility requirements
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Advantages of (LLC)
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-Limited liability
-Choice of taxation -Flexible ownership rules -Flexible distribution of profits and losses -Operating flexibility |
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Disadvantages of (LLCs)
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-No stock
-Limited life span -Fewer incentives -Taxes -Paperwork |
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Merger
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The result of two firms joining to form one company
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Acquisition
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One company's purchase of the property and obligations of another company
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Vertical Merger
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Joins two firms operating in different stages of related businesses
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Horizontal Merger
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Joins two firms in the same industry and allows them to diversify or expands their products
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Conglomerate Merger
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Unites firms in completely unrelated industries in order to diversify business operations and investments
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Leveraged Buyout (LBO)
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An attempt by employees, management, or a group of private investors to buy out the stockholders in a company, primarily by borrowing the necessary funds
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Franchise Agreement
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An arrangement 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
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Advantages of Franchises
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-Management and marketing assistance
-Personal ownership -Nationally recognized name -Financial advice and assistance -Lower failure rate |
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Disadvantages of Franchises
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-Large start-up costs
-Shared profit -Management regulation -Coattail effects -Restrictions on selling -Fraudulent Franchisors |
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Diversity of Franchising
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Encourage more women to franchise
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Home-Based Franchises
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More convenient but your home can seem more like work than relaxing
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E-Commerce in Franchising
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Internet or Physical store options for starting a business
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Uses in Technology in Franchising
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Internet, email, and websites help keep up to date as well as recruit new franchisees
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Franchising in Global Markets
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Canada is the number one Country with US franchises
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Cooperative
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(Co-op) is owned and controlled by the people who use it- producers, consumers, or workers with similar needs who pool their resources for mutual gain
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