Intro to Business Module 7 - Business Ownership

A ________ seeks to provide a return to shareholders while pursuing other goals that benefit community or society.

B corporation

In some situations, individual business partners are not obligated to consult with other participants in certain business agreements. The fact that a partner can make business decisions without consulting the other partners is considered to be a disadvantage of a:

LLP

Which form of business ownership involves tax reporting requirements that are fairly simple and the lowest tax rate of any legal structure?

Sole proprietorship

A business professor is trying to describe what makes an LLC different from a C Corporation. Which would be the correct statement for her to make about the difference?

The LLCs and C Corporations are taxed differently.

What would be the advantages of choosing a sole proprietorship over other legal structures of business?

The sole proprietorship would be cheaper to set up, the owner would have full control, the owner would be taxed as an individual, and the owner keeps all of the profits.

Why would a company undertake a horizontal merger or acquisition?

To take advantage of synergies and potential market share gains.

A ________ is owned and managed by a group of individuals who share in decision-making and risk.

a general partner runs the business.

In a limited partnership:

a general partner runs the business.

Which of the below would illustrate the advantages of vertical mergers and acquisition?

a media company merging with a cable company

A partnership is:

a single business in which two or more people share ownership.

A sole proprietorship is described best by which of the following descriptions?

an unincorporated business owned and run by one individual in which there is no distinction between the business and the owner

Which of the following entities are subject to double taxation?

corporations

Your friend Jody comes to you asking for advice. She owns a moving company called "Whatever Moves You, LLC" (they have cute musical notes in logo—very clever). She has owned the business for 45 years and has seen tremendous growth. Jody would like to transfer ownership of her business to her 30 year old daughter so that she may retire. What do you tell Jody?

"You will need to work with an attorney to see if this is even possible because rules about transferability of LLC's vary by state."

A Subway franchisee does not do a good job managing food safety. Customers purchase sandwiches that contain expired turkey and become ill reflecting poorly on the brand and exposing the company to liability. This is an example of:

A disadvantage for the franchisor—a lack of control over the franchisee resulting in damage to the brand.

________ usually creates one larger company and one of the original two companies ceases to exist.

A merger

This one feature of an LLP could be considered both an advantage and/or a disadvantage:

A partner can make a decision affecting the entire business without consulting the other partners

ABC Corporation is the second-largest company in a competitive market with three other major players. ABC wants to expand their market share quickly and become the leader in their space. One of the options their board considers is to purchase the property, plants, and equipment of the fourth-largest company, XYZ Inc. This action would be classified as a/an:

Acquisition

Which of the following entities can pursue a broader mission that may sometimes be at odds with maximizing profits for shareholders:

B corporation.

You are thinking about starting your own business. What are the most important factors you should consider when thinking about your form of business ownership?

Cost of start up, taxation and risk tolerance.

Four friends are discussing franchises as a form of business, but have different opinions about how they are defined. Who is correct?

Daniel believes that franchises are businesses where the Franchisor licenses a business model, trademarks and methods to independent entrepreneurs (Franchisees) who own and operate individual units

When starting a business, why is it important to understand and consider tax implications?

Different forms of business ownership result in businesses and owners being taxed differently. It is important to understand these differences in order to choose the scenario that best fits your needs.

The following business integration illustrates the definition of a "merger":

Exxon and Mobil

Cost of start up, control vs.responsibility, profits, taxation, entrepreneurial ability, risk tolerance, financing and continuity or transferability are each:

Factors to consider when choosing an organizational type.

For a/the ________, the/an ________ is an alternative to expanding through the establishment of a new location, which avoids the financial investment and liability of a chain of stores.

Franchisor, franchise

Warren is starting a business. His biggest concerns are losing everything he owns if something goes wrong and being mired in strict taxation and administrative regulations. For those reasons, he decides to start a(n):

LLC

What makes an LLC different from a C Corporation?

LLCs and C Corporations are taxed differently.

This business legal structure can be defined as having single taxation, limited liability, and the flexibility to let each individual in the business decide how much responsibility and participation they want. This is a(n):

LLP

You and your dear friend want to start an accounting firm together. You know each other well but you don't want to be held responsible for your friends negligence or misconduct should such an event occur. You and your friend also want to be sure that you are only taxed once on company profits. Which type of organizational structure might be best for you?

LLP

You are thinking about starting a business. Of course, you want to maximize your income and not pay taxes both as a business and as an individual. You are also concerned about liability. If something bad happens with your business, you don't want to be personally liable. What form of business ownership would best meet your needs?

Limited Liability Company

A business in which some or all partners have limited liabilities is called a:

Limited Liability Partnership

Your friend tells you he is working on setting up a business. He tells you he has a business partner who shares in all decision making, it has been fairly easy to set up, he will only be taxed once on company profits, and he has limited liability for the company. What kind of business has your friend most likely described?

Limited Liability Partnership

The credits and deductions of the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company. This is an example of a benefit enjoyed by which type of organization?

Limited Liability Partnerships

What is an LLC?

Limited Liability Company—a business structure that is attractive to small business owners because they provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

Which of the following is a legal entity completely separate from the entities who own it?

corporation

The disadvantages to starting and running a corporation include:

double taxation

In an LLP:

One partner IS NOT responsible or liable for another partner's misconduct or negligence.

Which of the following businesses are examples of a franchise?

Pizza Hut

Your friend is thinking about starting her own business. What would you advise her to consider when thinking about her form of business ownership?

Risk tolerance, cost of start up and taxation.

You are forming a new company that delivers food to students across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation. You want to pay each of the partners based on the percentage of the company that they own. You could accomplish this by forming a(n):

S corporation.

Advantages of an S Corporation include:

Tax savings, business expense tax credits and the business has an independent life from its shareholders.

You are considering setting up a business as an S corporation. What are some of the advantages to this type of business form?

Tax savings, business expense tax credits and the business has an independent life from its shareholders.

The main thing that makes S Corporations different from C Corporations is:

That the business is not taxed itself. Only the shareholders are taxed.

Why would a company choose to engage in a vertical merger or acquisition?

To increase synergies by merging firms that would be more efficient operating as one.

A thirty-five-year old entrepreneur with dependents is considering starting a business. She is concerned about protecting her personal assets and making sure that if her company were to fail, she would not lose her home or personal savings. This is an example of an individual:

With low risk tolerance.

You form an LLC to protect yourself from personal liability. The business fails and there are debts remaining. Under which of the following circumstances would you be personally liable for business debts.

You signed documents personally securing the debts of the business.

Caitlin is invited to join a business as a partner due to her expertise in the field. She is asked to sign a partnership agreement that gives her 40% of the profits, full control of the marketing activities, but final say on all other decisions goes to the original owner. She is joining:

a limited partnership

If an owner of a business were to die, which of the following entities would cease to exist (which type of business would "die" too)?

a sole proprietorship

Benefits of being a franchisee include:

access to a template for the business.

In 2014 Microsoft purchased the popular game Minecraft for $2.5B. This is an example of a(n):

acquisition.

When one company purchases and absorbs another company it is called a(n):

acquisition.

Taco Bell over the years has established multiple locations across the U.S. and abroad. Because of the large number of stores, the company might be able to take advantage of economies of scale with advertisers, vendors, and suppliers. This example is of a(n):

advantage for the franchisor

In 2016, Microsoft announced that it would buy LinkedIn for $26.2 billion, in an all cash deal, making it the 6th largest deal if its kind on record. This is an example of:

an acquisition

Disney and Pixar coming together was a "match made in cartoon heaven" some say. This undertaking enabled the two companies to collaborate freely and easily resulting in some of the highest grossing animated films of all time. This is a successful example of:

an acquisition.

Once a franchise is established with multiple locations, the company may be able to take advantage of economies of scale with suppliers, advertisers and vendors. This is an example of:

an advantage for the franchisor.

The typical fee structure for a franchise including initial franchise fees and royalties, is an example of:

an advantage for the franchisor.

Define the business structure commonly known as a "sole proprietorship."

an unincorporated business owned and run by one individual in which there is no distinction between the business and the owner

A general partnership:

assumes profit, liability and management duties are divided equally among partners.

What is the biggest benefit to businesses of horizontal mergers and acquisitions?

competition is reduced

In a sole proprietorship, the owner of the business:

enjoys complete control over all aspects of the business.

AT&T's proposed $39 billion acquisition of T-Mobile USA would have combined two of the four major national providers of mobile telephone services for both individuals and businesses. As a result of this acquisition, AT&T would be the provider of almost 40% of all mobile service, with Verizon and Sprint making up the remainder of the market. This is an example of:

horizontal acquisition.

Walgreens, one of the largest drugstore companies in the U.S., announced in October of 2015 that it would acquire all of Rite Aid's drugstores and debts for a $17.2 billion all-cash transaction. This is an example of a:

horizontal merger

Charter Communications is seeking to purchase and bring together Time Warner Cable and Bright House Networks, creating a company that will serve a collective 18.8 million Internet broadband subscribers and 17 million TV subscribers. Charter has specifically cited a desire to have greater bargaining power in negotiating with channel owners like Disney. This is an example of a:

horizontal merger.

A legal partnership agreement should include:

how future business decisions will be made, including how the partners will divide profits, resolve disputes, change ownership, and how to dissolve the partnership.

These are the primary disadvantages for the Franchisor in a franchise business model.

lack of control, vulnerability of trade secrets, and overexposure of the brand

You are forming a new company that delivers food to residents across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation. You want to pay each of the partners based on their contribution to the success of the company, which is NOT equal to their percentage ownership. You could accomplish this by forming a(n):

limited liability company.

There are four partners in the Dallas Pet Taxi company. One of the partners, Devin, decides to dismiss a particularly difficult client from using the company's services. He doesn't consult with the other three partners in order to take this action. The fact that Devin can make this type of business decision without consulting the other partners is considered to be a disadvantage of what type of business entity?

limited liability partnership

You get in a conversation with a man in the reception room at your doctor's office. He tells you he is establishing a barbershop business and has a business partner who shares in all decision making. The business has been fairly easy to set up, he has limited liability for the company and will only be taxed once on company profits. What kind of business has your new acquaintance described to you?

limited liability partnership

Unlike many types of businesses, ________ are not recognized as legal business structures in every state. Some states even limit the creation of these to professionals such as doctors or lawyers.

limited liability partnerships

Some of the major advantages of incorporating your business are:

limiting your personal liability, raising capital through the sale of stock, and alleviating disagreements among partners.

What is the purpose of a B Corp and what are the general requirements for operation?

make a commitment to creating general public benefit, prepare a annual benefit report, pay and annual fee and adopt a third-party standard

You have looked into the various forms of ownership and decide that you would like to establish your business as a B Corporation. Which of the following items will you need to do?

make a commitment to creating general public benefit, prepare a annual benefit report, pay and annual fee and adopt a third-party standard

A new company will be formed by combining Company A with the Company B. This type of business combination is known as a(n):

merger

The following are all advantages of business partnerships EXCEPT:

partnerships shield the individual partners from debt and liability

The two major drawbacks of an LLC legal structure are:

potential limited life span and self-employment tax

A franchise:

provides a proven product, business model and brand to the franchisee.

The advantages of being a franchisee are:

risk reduction, brand recognition, and relative autonomy

A ________ is owned by a single individual who is responsible for all decisions and liabilities.

sole proprietorship

The most common form of business ownership in the U.S. is a:

sole proprietorship

What are the most important factors to consider when choosing an organizational type for your business?

start-up costs, taxation, and control

The most significant differences between C and S corporations have to do with:

taxation, administration, and shareholder compensation

Aamer is preparing to interview for a job opening he saw on an employment board. He does a little research and discovers that the business is run by three individuals. How could he tell if the business is a sole proprietorship with two employees or a partnership of three persons?

the distinction would be if the three persons share legal ownership

Disadvantages for a franchisee include:

the high cost of start-up.

The disadvantages of partnerships include:

the need to share decision making across the partners.

Which of the following is a downside of choosing a business structure where the owner has full control?

the owner has full responsibility and liability for the company

If you were advising a friend about setting up a partnership, which of the following characteristics are advantages of partnerships when compared with sole proprietorships?

the partners bring diverse skills and perspectives

Partnerships have several advantages over sole proprietorships including:

the partners bring diverse skills and perspectives.

Partnerships have several limitations including:

the potential for disagreements among partners.

Smart Phone Inc. manufactures its custom phone cases for its awesome phones and tablets. It also manufactures its custom touch screen sensors and owns its own shipping company that delivers its phones and tablets straight to customer homes. Smart Phone Inc. is great at:

vertical acquisitions

"3B's—Bigger, Better Burger" hamburger fast food restaurants merge with a large potato farm "Potters Potatoes." 3B's is now looking forward to having a fresh, reliable supply of potatoes for its fries along with a farm offering fair prices and which is now under the direction of the same company leadership. Potters Potatoes is happy to steadily supply its potatoes to 3B and not have its potatoes go unused. This is an example of:

vertical merger or acquisition.

"Klucky Farms" merges with supermarket giant "Super Fresh Foods." Klucky Farms is excited to be able to supply Super Fresh Foods with a steady supply of quality chicken and Super Fresh Foods is glad to have a reliable farm with fair prices under the same corporate leadership. This is an example of:

vertical merger or acquisition.