Study Plan: Business Ownership
Disadvantages of a Franchise
-Cost -Unequal Partnership - Rules and Enforcement
Profits-to Share or Not to Share (factors to consider when selecting a form of ownership)
- How a business' profits are shared is determined by the legal structure -Some owners are willing to share the profits in exchange for assistance and support establishing and running the business. -Other owners make the conscious decision to limit the scope and nature of the business to avoid having to bring in others, thereby retaining all of the income themselves.
Advantages of B Corp
- Protection of Mission =Reputation -Creation of Value
Disadvantages of B Corp
- Transparency and reporting Requirements - Annual Fees to Retain Certified B Corp Status -Compliance and Governance Obligations
Limited Liability partnerships (LLP)
-A partnership in which some or all partners have limited liabilities - One partner is not responsible or liable for another partner's misconduct or negligence
Partnerships as a form of business
-A single business in which two or ore people share ownership -Each partner contributes to all aspects of the business, including money, property, labor, or skill -each partner shares in the profits and losses of the business
S corporations
-A special type of corporation created through an IRS tax election -can avoid double taxation "Considered by law to be a unique entity, separate and apart from those who own it" -Profits and losses can pass through to your personal tax return
Benefit Corporation
-A type of for-profit corporate entity that includes positive impact on society, workers, the community, and the environment - in addition to profit - Differ from traditional C corporations in purpose, accountability, and transparency, but not in taxation -purpose is to create General Public Benefit
Advantages for a Franchisor
-Access to Capital for Growth and Expansion -Cash Flow for Operations -Economies of Scale
Continuity and Transferability
-Business owners need to consider whether they want their business to outlive them -
Control vs. Responsibility (factors to consider when selecting a form of ownership)
-Different legal structures provide the owner with more or less control and authority - There are trade-offs in each case, though, because with autonomy and control come responsibility
Disadvantages of LLP
-Duration -Limitation of Formation -Partner Control
Taxation (factors to consider when selecting a form of ownership)
-Each form of business ownership is treated differently by the IRS and by state and local taxing authorities. -depending on the legal structure of the business, the owner may be taxed at a lower rate than someone working for a large company, or the owner might see his or her business income taxed twice, sometimes with additional specialty taxes imposed by governmental agencies
Advantages of partnerships
-Easy and inexpensive -Shared Financial Commitment -Complementary Skills -Partnership Incentives for employees
Disadvantages of partnerships
-Joint and Individual Liability -Disagreements Among Partners -Shared Profits
Disadvantages for a Franchisor
-Lack of Control -Trade Secrets - Overexposure, brand Dilution
Financing (factors to consider when selecting a form of ownership)
-Lenders ,ay be one of the greatest influences on the choice of business ownership-even more decisive than the owner's preference or ambition -Lenders often require the business to be structured in a way that best assures the repayment of funds.
Advantages of a Franchise
-Less Risk -Name/Brand Recognition -Access to Expertise, Ongoing Support -Relative Autonomy
Advantages of a C corporation
-Limited Liability -Ability to Generate Capital -Corporate Tax Treatment -Attractive to Potential Employees
Advantages of Limited Liability
-Limited Liability -Less Record Keeping -Sharing of Profits
Franchises
-One business owner licensing trademarks and methods to an independent entrepreneur for a prescribed period of time
Risk Tolerance (factors to consider when selecting a form of ownership)
-One's degree of risk tolerance should be compatible with the form of ownership being considered -Every prospective business owner must gauge what he or she is willing to risk losing and choose a form of business accordingly
Disadvantages of Limited Liability
-Possible Limited Life - Self-Employment Taxes
General partnerships
-Profits, liability, and management duties are divided equally among partners -For unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement
Advantages of LLP
-Single Taxation -Limited Liability -Flexibility -
Seven Legal Structures
-Sole proprietorship -General Partnership -Franchise -Limited Partnerships and Limited Liability partnerships (LLP) -Limited liability company (LLC) -C Corporation -S Corporation
Entrepreneurial Ability (factors to consider when selecting a form of ownership)
-Starting a business requires more than a talent -An owner needs knowledge and expertise to transform an interest or hobby into a commercial enterprise -
Disadvantages of an S corporation
-Stricter Operational Processes -Shareholder Compensation Requirements
Advanatages of an S corporation
-Tax Savings -Business Expense Tax Credits -Independent Life
Disadvantages of a C corporation
-Time and Money -Double Taxing -Additional Paperwork
Limited Liability (LLC)
-a hybrid business structure allowed by state statute -provide the limited liability features of a corp and the tax efficiencies and operational flexibility of a partnership -Owners are called members -all profits and losses "passed through" each member
Limited partnerships
-allow partners to have limited liability as well as limited input with management decisions -Limits depend on the extent of each partner's investment percentage More complex than general partnerships, attractive for short-term projects
C corporations
-an independents legal entity owned by shareholders -the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs.
Separate tax-paying entity
-corporations pay income tax on their profits -Income paid as dividends is taxed twice -
Advantages of sole proprietorship
-easy and inexpensive to form -Profits all go to the owner -Direct control of the business -Freedom from government regulation -No special taxation -Ease of dissolution
Horizontal mergers/acquisition
-occurs between companies in the same industry -common in industries with fewer firms, since competition tends to be higher -synergies and potential market-share gains are much greater in those industries
Sole Proprietorship
-simplest and most common legal structure someone can choose -unincorporated business owned and run by one individual -You are entitled to all profits and are responsible for all your business's debts, losses, and liabilities -regulations like permits or certificates vary by industry, state, and locality
Vertical mergers/acquisition
-ther merger of two organizations that have a buyer-seller relationship, or, more generally, two or more firms that are operating at different levels within an industry's supply chain
Disadvantages of sole proprietorship
-unlimited liability -Difficulty raising capital -Limited managerial expertise -Trouble finding qualified employees -Personal time commitment -Unstable business life -Losses are the owners responsibility
Acquisition
-when a company purchases the assets of another business -permits the acquired company to continue operating as it did prior to the acquisition -usually refers to a purchase of a smaller firm by a larger one
Cost of Start-Up (factors to consider when selecting a form of ownership)
As the forms of business ownership become more complex, the cost associated with establishing the business also increases
Corporate Personhood
The legal notion that corporations, apart from their associated human beings have some, but not all, of the legal rights and responsibilities enjoyed by natural persons.
Merger
Usually creates one larger company, and one of the original companies ceases to exist
