Business Ch 6
franchisee
the party in a franchise relationship that pays for the right to use resources supplied by the franchisor
franchise
a licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, business methods and other property in exchange for monetary payments and other considerations
genera partnership
a partnership in which al partners can take an active role in managing the business and having unlimited liability for any claims against the firm
divestiture
the transfer of total or partial ownership of some of a firm's operations to investors or to another company
acquisitions
a corporate restructuring in which one firm buys another
S corporation
a form of corporation that avoids double taxation by having its income taxed as if it were a partnership
limited liability
When owners are not personally liable for claims against their firm. Owners with limited liability may lose their investment in the company, but their other personal assets are protected.
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 different industries
horizontal merger
a combination of two firms that are in the 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 C corporations
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
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
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
distributorship
a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it
partnership
a voluntary agreement in which two or more people act as co-owners of a business for profit
Advantages of general partnerships
ability to pool resources, ability to share responsibilities and capitalize on complementary skills, ease of formation, possible tax advantages
institutional investor
an investor that pools contributions from investors, clients or depositors and uses these funds to buy stocks and other securities
stockholder
an owner of a corporation
corporate bylaws
basic rules governing how a corporation is organized and how it conducts its business
statutory close corporation (or closed)
corporation with a limited number of owners that operates under simpler, less formal rules than a C corporation
Disadvantages of franchising
costs, lack of control, negative halo effect, growth challenges, restrictions on sale, poor execution
Advantages of sole proprietorships
ease of formation, retention of control, pride of ownership, retention of profits, possible tax advantage
Disadvantages of C corporations
expense and complexity of formation and operation, complications when operating in more than one state, double taxation of earnings and additional taxes, more paperwork, more regulation, more secrecy, possible conflicts of interest
Advantages of franchising
less risk, training and support, brand recognition, easier access to funding
Disadvantages of sole proprietorships
limited financial resources, unlimited liability, limited liability to attract and maintain talented employees, heavy workload and responsibilities, lack of performance
Advantages of C corporations
limited liability, permanence, ease of transfer of ownership, ability to raise large amounts of financial capital, ability to make use of specialized management
franchisor
the business entity in a franchise relationship that allows others to operate its business using resources it supplies in exchange for money and other considerations
articles of cooperation
the document filed with a state government to establish the existence of a new corporation
board of directors
the individuals who are elected by stockholders of a corporation to represent their interest
C corporation
the most common type of corporation, which is a legal business entity that offers limited liability to all of its owners who are called stockholders
Disadvantages of general partnerships
unlimited liability, potential for disagreements, lack of continuity, difficulty in withdrawing from a partnership