Chapter 5 How to Form A Business
Disadvantages of franchises
1. Coattail effects
Three elements of any general Partnership
1. Common ownership 2. Shared profits and losses 3. Right to participate in managing the operations of the business
Advantages of Sole Proprietorship
1. Ease of starting and ending the business 2. being your own boss 3. leaving a legacy 4. Retention of company profits 5. No special taxes
Advantages in a Partnership
1. More financial resources 2. shared management and pooled/complementary skills and knowledge 3. longer survival 4. No special taxes
Disadvantages of LLCs
1. No stock 2. Limited Life Span 3. Fewer incentives 4. taxes 5. paperwork
Disadvantages of Corporations
1. initial cost 2. extensive paperwork 3. double taxation 4. size
Advantages of LLCs
1. limited liability 2. choice of taxation 3. flexible ownership rules 4. flexible distribution of profits and losses 5. operating flexibility
Advantages of Corporations
1. limited liability 2. ability to raise more money for investment 3. size 4. ease of attracting talented employees 5. separation of ownership from management
disadvantages of Sole Proprietorships
1. unlimited liability 2. limited financial resources 3. management difficulties 4. Overwhelming time commitment 5. few fringe benefits 6. limited growth 7. limited life span
Disadvantages of Partnership
1. unlimited liability 2. division of profits 3. disagreements among partners 4. difficulty of termination
General partnership
all owners share in operating the business and in assuming liability for the business debts
Limited Partnership
has one or more general partners and one or more limited partners
Conventional Corporation
is a state-chartered legal entity with authority to act and have liability separate from its owners, its stockholders
S Corporation
is a unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships
Franchise agreement
is an arrangement whereby someone with a good idea for a business
Leveraged buyout:
is 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
General partner
is an owner who has unlimited liability and is active in managing the firm
Limited Partner
is an owner who invests money in the business but does not have any management responsibility or liability for losses beyond his or her investment
Acquisition
is one company' purchase of the property and obligations of another company
Cooperative
is owned and controlled by the people who use it, producers, consumers, or workers with similar needs who pool their resources for mutual gain
Limited liability company (LLC)
is similar to an S corporation, but without the special eligibility requirements
Horizontal merger
joins two firms in the same industry and allows them to diversify or expand their products
Vertical Merger
joins two firms operating in different stages of related businesses
Partnership
legal form of business with two or more owners
Limited Liability Partnership
limits partners risk losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision
Master limited partnership
looks much like a corporation in that it acts like a corporation and is traded on the stock exchanges like a corporation but is taxed like a partnership and thus avoids the corporate income tax
Limited Liability
means that the limited partners liability for the debts of the business is limited to the amount they out into the company; their personal assets are not at risk
Home-Based Franchises
offer many obvious advantages, including relief from the stress of commuting, extra time for family activities, and low overhead expenses
Merger
result of two firms joining to form one company
Franchisor
sells the rights to use the business name and sell a product or service to others
unlimited liability
the risk of personal losses: any debts or damages incurred by the business are your debts and you must pay them, even if it means selling your home, your car, or whatever else you own
Conglomerate Merger
unites firms in completely unrelated industries in order to diversify business operations and investments