Exam 2: Ch. 6-9

advantages of statutory close (or closed) corporation

it can operate under similar arrangements than conventional corporations. For example, it doesn't have to elect a board of directors or hold an annual stockholders' meeting.

limitations of non profit corporation

it has members (who may pay dues) but cannot have stockholders. It cannot distribute dividends to members. It cannot contribute funds to a political campaign. it must keep accurate records and file paperwork to document tax-exempt status.

advantages of franchising

less risk, training and support, brand recognition, easier access to funding

disadvantages of sole proprietorships

limited financial resources, unlimited liability, limited ability to attract and maintain talented employees, heavy workload and responsibilities, lack of permanence

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

advantages of LLCs

limited liability, tax pass-through, simplicity and flexibility in management and operation, flexible ownership

small business development centers (SBDCs)

local offices that provide comprehensive management assistance to current and prospective small business owners.

entrepreneurs

people who risk their time, money, and other resources to start and manage a business

advantages of S corporation

the IRS does not tax earnings of S corporations separately. Earnings pass through the company and are taxed only as income to stockholders, thus avoiding the problem of double taxation associated with C corporations. stockholders have limited liability.

corporate bylaws

the basic rules governing how a corporation is organized and how it conducts its business.

franchisor

the business using resources it supplies in exchange for money and other considerations

franchise agreement

the contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties

articles of incorporation

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 interests

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.

limitations of statutory close corporation

the number of stockholders is limited (usually no more than 50). Stockholders normally can't sell their shares to the public without first offering the shares to existing owners. Not all states allow formation of this type of corporation.

franchisee

the party in a franchise relationship that pays for the right to use resources supplied by the franchisor.

divestiture

the transfer of total or partial ownership of some of a firm's operations to investors or to another company.

alternative lenders

typically private firms that charge very high interest rates, structure loans to be repaid in months rather than years, and often collect payments daily or weekly to reduce risk. They also tend to make decisions quickly and are more willing to overlook lower credit scores.

disadvantages of general partnerships

unlimited liability, potential for disagreements, lack of continuity, difficulty in withdrawing from 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.

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.

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.

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.

market niche

a small segment of a market with fewer competitors than the market as a whole. Market niches tend to be quite attractive to small firms.

distributorship

a type of franchising arrangement in which the franchisor makes a product and licenses the franchise to sell it.

partnership

a voluntary agreement under which two or more people act as co-owners of a business for profit.

advantages of general partnerships

ability to pool financial resources, ability to share responsibilities and capitalize on complementary skills, ease of formation, possible tax advantages

small business administration (SBA)

an agency of the federal government designed to maintain and strengthen the nation's economy by aiding, counseling, assisting, and protecting the interests of small businesses.

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

venture capital firms

companies that invest in start-up businesses with high growth potential in exchange for a share of ownership

limitations/disadvantages of LLCs

complexity of formation, annual franchise tax, foreign status in other states, limits on types of firms that can form LLCs, difference in state laws

disadvantages of franchising

costs, lack of control, negative halo effect, growth challenges, restrictions on sale, poor execution

advantages of nonprofit (or not-for-profit) corporation

earnings are exempt from federal and state income taxes. Members and directors have limited liability. Individuals who contribute money or property to the nonprofit can take a tax deduction, making it easier for these organizations to raise funds from donations.

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, and less security, possible convicts of interest

angel investors

individuals who invest i startup companies with high growth potential in exchange for a share of ownership

limitations of S corporation

it can have no more than 100 stockholders. with only rare exceptions, eau stockholder must be a U.S. citizen or permanent resident of the United States (no ownership by foreigners or other corporations).

limited liability company (LLC)

a form of business ownership that offers both limited liability to its owners and flexible tax treatment.

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.

acquisition

a corporate restructuring in which one firm buys another

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

statutory close (or closed) corporation

a corporation with a limited number of owners that operates under simpler, less formal rules than a C corporation

external locus of control

a deep-seated sense that forces other than the individual are responsible for what happens in his or her life

internal locus of control

a deep-seated sense that the individual is personally responsible for what happens in his or her life

franchise disclosure document (FDD)

a detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least fourteen calendar days before the franchise agreement is signed.

corporation

a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners.