intro 2 business chapter 5
conglomerate merger
joining of firms in completly unrelated industries
3 disadvantages to an entrepreneurship
long hours (80 hours per week are common), total responsibility (the success of the business depends on your managerial skills), financial skills (the main reason why entrepreneurships fail is because they run out of money)
3 reasons why a small business might not work
managerial skills needed; a small business owner must have multiple skills (financing, employee relations, production, customer relations)
6 disadvantages of a small business
may under price or over price goods or services, many small businesses compete on prices
financial plan
money
small businesses generate...
more than half the nation's income
6 disadvantages of a small business
often work long hours, great financial responsibility
acquisition
one company's purchase of the property and obligations of another company
limited liability partnership (LLP)
partnership that limits partners risk of losing their personal assets to only their acts and omissions of people under their supervision
legal plan
points out how you will organize your company
small businesses are a...
principal source of new jobs
merger
result of two firms forming one company
4 advantages to entrepreneurship
satisfaction from taking a risk and becoming a success, showing expertise and skills, working from home, gaining profit
6 disadvantages of a small business
small business owners may mistake the freedom of being in business for oneself for the liberty of working or not, a small business owner must be aware of opportunities or threats to the business at all times
risk-takers
someone who likes to take risks
7 essential parts of the business plan
summary, company description, products and services, marketing plan, legal plan, management and operating plan, financial plan
franchise agreement
the contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties in detai.l
horizontal merger
the joining of firms in completly unrelated industries
vertical merger
the joining of two companies involved in different stages of related business
profit
the money left over after a business has paid all costs of producing its goods or services
limited liability
the responsibility of a business's owners for losses only up to the amount they invest; limited partnership and shareholders have limited liablity
unlimited liability
the responsibility of business owners for all of the debts of the business
franchise
the right to use a specific business's name and sell its products or services in an area
questions to consider before starting business
what will i produce? who are my main competitors? why is my product needed? what licenses, permits, or other legal documents do i need? how much money will i need to get started?
6 disadvantages of a small business
when you're a small business owner, you're responsible for decisions (a small business owner must have multiple skills. finance, employee relations, production, customer relations, any other area with a decision to be made
Corporation
A form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners.
Limited Liability Company (LLC)
A form of business ownership that offers both limited liability to its owners and flexible tax treatment.
Sole Proprietorship
A form of business ownership with a single owner who usually actively manages the company.
S corporation
A form of corporation that avoids double taxation by having its income taxed as if it were a partnership.
Limited Liability Partnership (LLP)
A form of partnership in which all partners have the right to participate in management and have limited liability for company debts.
General partnership
A partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm.
Limited Partnership
A partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability.
What is the common objective of a conglomerate merger? What is an example of a conglomerate merger?
Common Objective: Reduce risk by making the firm less vulnerable to adverse conditions in any single market. Example: GE's move into the entertainment industry by acquiring RCA in 1986 and Vivendi Universal's movie and television units in 2004.
What are the common objectives of a horizontal merger? What is an example of a horizontal merger?
Common Objectives: Increase size and market power within industry. Improve efficiency by eliminating duplication of facilities and personnel. Example: 2006 merger of telecommunications giants SBC and AT&T
What are the common objectives of a vertical merger? What is an example of a vertical merger?
Common objectives: Provide tighter integration of production Increased control over supply of crucial inputs Example: 1996 merger of Time Warner with Turner Broadcasting
What are the four major forms of business ownership?
Sole proprietorship General Partnership General Corporation Limited Liability Company
Limited Liability
When owners are not personally liable for claims against their firm. Limited liability owners may lose their investment in the company, but their personal assets are protected.
corporation
a legal entity with authority to act and have liabilty separate from its owners
partnership
a legal form of business with two or more owners
general partnership
a partnership in which all owners share in operating the business and in assuming liability for the business's debts
master limited partnership (MLP)
a partnership that looks much like a corporation (traded on stock exchange) but is taxed like a partnership and thus avoids the corporate income tax
limited partnership
a partnership with one or more general partners and one or more limited partners
franchisee
a person who buys a franchise
entrepreneur
a person who recognizes a business opportunity and organizes, manages, and assumes the risk of a business enterprise, with the intent of increasing the market value of the business
conventional corporation
a state charted legal entity with authority to act and have liability separte from its owners
S corporation
a unique government creation that looks like a corporation but is taxed like like sole proprietorships and partnerships
business plan
a written description of a new business venue that describes all aspects of the business
small businesses are account for...
about 38% of jobs in high technology
6 disadvantages of a small business
about 4 out of 5 businesses fail in their first 5 years
franchise agreement
an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in the area
leveraged buyout (LBO)
an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing
small business (the small business administration)
an independently owned business that usually has the owner as its manager
general partner
an owner (partner) who has unlimited liability and is active in managing the firm
limited partner
an owner who invests money in the business but does not have any management responsibiility or liability for losses beyond the investment
3 advantages of a small business
being the boss (being in charge), offering services large companies cannot offer (small businesses can respond quickly to customer needs), ease of formation (takes a short amount of time and little paperwork)
limited liability company (LLC)
company similar to an S corp. but without the special eligibility requirement
products or services
describe the products and services
marketing plan
describes your customers and competition
management plan and operating plan
detail the company's key personnel
3 reasons why a small business might not work
effect of change; consumers' tastes change. if flexibility and change are not part of the business, it is likely to fail
company description
explains the type of company
a small business employs....
fewer than 500 people
6 disadvantages of a small business
going into business with little or no experience may result in the business closing, small business owners may not be able to afford to hire experts or consultants to help run the business
3 reasons why a small business might not work
inadequate financial planning; starting with little money, spending carelessly, borrowing money without planning, forgetting about taxes and insurance; may result in failure
summary
1 to 3 paragraph overview of the plan
3 tips for writing a successful business plan
1. be brief and relevant 2. don't inflate the importnace or possible success of your business 2. "write short and be honest"
List the following characteristics of a general partnership: Number of owners Participation in management Owner's liability Tax implications State filing requirements
2 or more All partners participate Unlimited Taxed as income to owners No special filing required
small businesses employ more than...
50% of the total workforce in the US
Business Format Franchise
A broad franchise agreement in which the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor.
Vertical Merger
A combination of firms at different stages in the production of a good or service.
Conglomerate Merger
A combination of two firms that are in unrelated industries.
Horizontal Merger
A combination of two firms that are int he same industry.
Merger
A corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.
Nonprofit Corporation
A corporation that does not seek to earn a profit and differs in several fundamental respects from general corporations.
Statutory Close Corporation
A corporation with a limited number of owners that oprates under simpler, less formal rules than a C Corporation.
Franchise
A type of business that is set up through a Franchise Agreement; which is a contract between a Fanchisor and a Franchisee to to use it's name, trademark, aptents, copyright, business methods, and other property in exchange for monetary payments and other considerations.
Partnership
A voluntary agreement under which two or more people act as co-owners of a business for profit.
Acquisition
Aa corporate restructuring in which one firm buys another. Afterwards, the target firm (the one being purchased) ceases to exist as an independent entity, while the acquiring firm continues to operate.
What are some advantages and disadvantages to each the franchisor and the franchisee?
Advantages for Franchisor: revenue gained without need to invest its own money. Advantages Franchisees: gain the right to use a well-known brand name and proven business methods along with receiving training and support from franchisors. Disadvantage Franchisor: dealing with a large number of franchisees can be difficult for franchisors. Irresponsible franchisees can have a negative impact on the entire organization. Disadvantages Franchisee: fees must be paid by the franchisee along with loss of control of the business.
What are the key advantages of an S corporation? What are the limitations?
Advantages: Avoidance of double taxation Stockholders have limited liability Limitations: Can have no more than 100 stockholders Each stockholder must be a U.S. citizen
What are some advantages and disadvantages of a General Partnership?
Advantages: Can pool financial resources Each co-owner takes an active role in management Benefits of shared workload and complementary skills Tax advantages Disadvantages: Unlimited liability Potential for disagreements Death or withdrawal can create a lack of continuity
Institutional Investor
An organization that pools contributions from investors, clients, or depositors and uses these funds to buy stocks and other securities.
Stockholder
An owner of a corporation.
List the following characteristics of a limited liability company: Number of Owners Participation in Management Owners Liability Tax implications State Filing Requirements
No limit Member managed or manager managed Limited Taxed only as income to owners Must file articles of organization with state
List the following characteristics of a general corporation: Number of Owners Participation in Management Owners Liability Tax implications State Filing Requirements
No limit (on number of stockholders); stockholders do not participate. Elected board directors appoints corporate officers who manage the corporation. Limited. Earnings subject to double taxation, also dividends are taxed as income to stockholders. Must file articles of incorporation with state.
List the following characteristics of a sole proprietorship: Number of Owners Participation in Management Owners Liability Tax implications State Filing Requirements
One owner Managed by proprietor Unlimited Taxed as income to owner No special filing required
What are the pros and cons of operating a business as a sole proprietorship?
Pros: Simplest and least expensive form of ownership Offers owner lots of flexibility Owner keeps all of the profits Cons: Has unlimited liability for debts of business Owner must work long hours and assume much responsibility Usually have limited amount of funds for expansion
Corporate Bylaws
The basic rules governing how a corporation is organized and how it conducts its business.
Articles of Incorporation
The document filed with a state government to establish the existence of a new corporation.
How can corporations restructure using mergers and acquisitions?
The firm being acquired ceases to exist as an independent entity, while the acquiring firm continues to operate.
Board of Directors
The individuals who are elected by stock-holders of a corporation to represent their interests.
C Corporation
The most common type of business corporation, where ownership offers limited liability to all of its owners, also called stockholders.
Why have corporations become the dominant form of business ownership?
The owners, stockholders, have limited liability They can raise financial capital through issuing shares of stocks and bonds They have unlimited life
Divestiture
The transfer of total or partial ownership of some of a firm's assets to investors or to another company.
Why have limited liability companies become increasingly popular?
They give owners limited liability while avoiding the problem of double taxation Fewer ownership restrictions than C corporations LLCs also are subject to fewer regulations Less strict management requirements than C corporations
cooperative
a business owned and controlled by the people who use it-- producers, consumers, or workeres with similar needs who pool their resources for mutual gain
entrepreneurship
a business started by someone who notices a need for a product or service
sole proprietorship
a business that is owned, and usually managed by one person
virtual business (dot-com company)
a business that operates on the internet (ex. Amazon.com)
franchisor
a company that developes a product concept and sells others the rights to make and sell the products
