Ch 5 - How to form a business
Advantages of franchises: 1. Management and marketing _____ 2. Personal _____ 3. Nationally recognized _____
assistance; ownership; name
A corporation has _____, these describe how the firm is to be operated from both legal and managerial points of view
bylaws
Today, a fast-growing franchise sector is _____
senior care
In order for a company to qualify as an S corporation they must: 1. Have no more than _____ shareholders 2. Have shareholders that are _____ or _____, and who are citizens or permanent residents of the US 3. Have only _____ class of stock 4. Derive no more than _____% of income from passive sources
100; individuals; estates; one; 25
Today over _____% of franchises are owned by African Americans, Latinos, Asians, and Native Americans
20
_____% of franchises are co-owned by male and female partners
45
An S corporation that loses its S status may not operate under it again for at least _____ years
5
Because of its proximity and shared language, _____ is the most popular target for US-based franchises
Canada
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships
S corporation
One company's purchase of the property and obligations of another company
acquisition
A _____ merger unites firms in completely unrelated industries in order to diversify business operations and investments
conglomerate (soft drink company and snack food company)
What makes franchising successful in global markets is what makes it successful in the US: _____ and a predictable level of _____ and _____
convenience; service; quality
The paperwork and details of S corporations are similar to those of _____ corporations
conventional (C)
A state-chartered legal entity with authority to act and have liability separate from its owners - its stockholders
conventional (C) corporation
A business owned and controlled by the people who use it - producers, consumers, or workers with similar needs who pool their resources for mutual gain
cooperative (co-op)
A legal entity with authority to act and have liability apart from its owners
corporation
Disadvantages of corporations: 1. Initial _____ 2. Extensive _____ 3. Double _____ 4. Two _____ returns 5. _____ - large corporations sometimes become too inflexible and tied down in red tape to respond quickly to market changes, and their profitability can change 6. Difficulty of _____ 7. Possible conflict with _____ and board of _____
cost; paperwork; taxation; tax; size; termination; stockholders; directors
Members of cooperatives _____ control these businesses by electing a board of directors that hires professional management
democratically
Foreign companies have found the fastest way to grow is often buy an _____ operation that can enhance their technology or expand the number of brands
established
Advantages of partnerships: 1. More _____ resources 2. Shared _____ and pooled/complementary skills and knowledge 3. Longer _____ 4. No special _____
financial; management; survival; taxes
The right to use a specific business's name and sell its products or services in a given territory
franchise
An agreement whereby someone with a good idea for a business (the franchisor) sells the rights to use the business name and sell a product or service to others (the franchisees) in a given territory
franchise agreement
A person who buys a franchise
franchisee
Every partnership must have at least one _____ partner
general
An owner (partner) who has unlimited liability and is active in managing the firm
general partner
A partnership in which all owners share in operating the business and in assuming liability for the business's debts
general partnership
3 types of partnerships
general partnerships, limited partnerships, master limited partnerships
_____-_____ businesses offer many advantages, including relief from the stress of commuting, extra time for family activities, and low overhead expenses
home-based
A _____ merger joins two firms in the same industry and allows them to diversify or expand their products
horizontal (soft drink company and mineral water company)
Before a business can so much as open a bank account or hire employees, it needs a federal tax _____
identification number
Normally, individuals who _____ do not issue stock to outsiders; therefore, they do not share all the advantages and disadvantages of large corporations
incorporate
Three questions to ask before forming a global franchise: Will your _____ property be protected? Can you give proper _____ to global partners? Are you able to adapt to franchise _____ in other countries?
intellectual; support; regulations
In a conventional (C) corporation, stockholders are not liable for the debts or other problems of the corporation beyond the money they _____ in it by buying ownership shares, or stock, in the company
invest
An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing
leveraged buyout (LBO)
Advantages of corporations: 1. Limited _____ 2. Ability to raise more money for _____ 3. _____ - they can hire specialists in all areas of operation 4. Perpetual _____ 5. Ease of _____ change 6. Ease of attracting talented _____ 7. Separation of ownership from _____
liability; investment; size; life; ownership; employees; management
Disadvantages of partnerships: 1. Unlimited _____ 2. Division of _____ 3. _____ among partners 4. Difficulty of _____
liability; profits; disagreements; termination
Major advantages of individuals who incorporate: limited _____ and possible _____ benefits
liability; tax
Advantages of forming LLCs: 1. Limited _____ 2. Choice of _____ - choose to be taxed as partnerships or as corporations 3. Flexible _____ rules - can be a person, partnership, or corporation 4. Flexible distribution of _____ and _____ 5. Operating _____
liability; taxation; ownership; profits; losses; flexibility
The responsibility of a business's owners for losses only up to the amount they invest; limited partners and shareholders (stockholders) have limited liability
limited liability
A company similar to an S corporation but without the special eligibility requirements
limited liability company (LLC)
A partnership that limits partners' risk of losing their personal assets to only their own acts and omissions of people under their supervision
limited liability partnership (LLP)
An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment
limited partner
A partnership with one or more general partners and one or more limited partners
limited partnership
A partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax; normally found in oil and gas industry
master limited partnership (MLP)
The result of two firms forming one company
merger
The Uniform Partnership Act (UPA) defines the three key elements of any general partnership: common _____, shared _____ and _____, and the right to participate in _____ the operations of the business
ownership; profits; losses; managing
A _____ is a legal form of business with two or more owners
partnership
A legal form of business with two or more owners
partnership
By taking a firm _____, management or a group of stockholders obtain all the firm's stock for themselves by buying it back from the other stockholders
private
The most popular businesses for franchising are _____ and ____ with convenience stores
restaurants; gas stations
Minority-owned businesses are growing at more than _____ times the national rate
six
A business that is owned, and usually managed by one person. This is the most common form of business ownership
sole propietorship
A franchise can be formed as a _____, a _____, or a _____
sole proprietorship; partnership; corporation
Disadvantages of franchises: 1. Large _____ costs 2. Shared _____ 3.Management _____ - can cause franchisees to lose the drive to run their own business 4. _____ effects - the actions of other franchises have an impact on your future growth and profitability 5. Restrictions on _____ 6. Fraudulent _____
start-up; profit; regulation; coattail; selling; franchisors
Advantages of sole proprietorships: 1. Ease of _____ and _____ the business 2. Being your own _____ 3. Pride of _____ 4. Leaving a _____ 5. Retention of company _____ 6. No special _____
starting; ending; boss; ownership; legacy; profits; taxes
Disadvantages of forming LLCs: 1. No _____ - need approval of other members in order to sell their interests in the company 2. Limited _____ - death of a member can cause LLCs to dissolve 3. Fewer _____ 4. _____ - must pay self-employment taxes on their profits 5. _____
stock; life span; incentives; taxes; paperwork
Cooperatives have an advantage in the marketplace because they do not pay the same kind of _____ corporations pay
taxes
The responsibility of business owners for all of the debts of the business
unlimited liability
Disadvantages of sole proprietorships: 1. _____ - the risk of personal losses 2. Limited _____ resources 3. _____ difficulties 4. Overwhelming _____ commitment 5. Few _____ benefits 6. Limited _____ 7. Limited _____
unlimited liability; financial; management; time; fringe; growth; life span
A _____ merger joins two firms operating in different stages of related business
vertical (soft drink company and artificial sweetener company)
3 major types of corporate mergers:
vertical, horizontal, conglomerate
Many franchisors prohibit franchisee-sponsored _____ because conflicts can erupt if the franchisor creates its own _____
websites; website
A corporation not only limits the liability of owners but often enables many people to share in the ownership of a business without _____ there or having other commitments to it
working
For your protection, be sure to put your partnership agreement in _____
writing