Intro to Business: Chapter 5

many companies eventually ___ because of the liability issues

incorporate

the __ cost of incorporating can be expensive because of the need for accountants and lawyers to get started

initial

___ owned businesses are growing more than the national rate

minority

limited liability

responsibility for a loss only up to the amount invested

merger

the result of two firms forming one company

advantages of home-based work include

- low overhead expenses - relief from commuting stress

disadvantages of franchises

- large start-up costs - shared profit - management regulation - coattail effects - restrictions on selling - fraudulent franchisors - paying a share of profits as royalties

the most popular business for franchising are

- restaurants (fast food and full service) - gas stations with convenience stores - retail stores - financial services - health clubs - hotels and motels - automotive parts and service centers

disadvantages of partnerships

- unlimited liability - division of profits - disagreements among partners - difficulty of termination

when each general partner is liable for the debts of the firm, no matter who was responsible for causing the debt, this is called:

unlimited liability

a comprehensive benefit plan may add up to 30 percent or more to a worker's salary

when working for a company

conglomerate merger

the joining of firms in completely unrelated industries ex: soft drink company buys snack food company

vertical merger

the joining of two companies involved in different stages of related businesses ex: soft drink company buys artificial sweetener company

limited liability company

form of business ownership that provides limited liability, as in a corporation, but is taxed like a partnership is a(n) limited liability company disadvantage: no stock

articles of partnership

the legal documents that the creators of a corporation must file with the appropriate state office

many firms incorporate in the state of ___ because the state's laws make the process easier than in other states

Delaware

no stock, limited life span, and fewer incentives are disadvantages of an

LLC

corporation

a chartered legal entity with authority to act and have liability apart from its owners

the start-up costs of filing for incorporation are high because

lawyers and accountants are needed to do complex filings

LLCs can be taxed as ___ or ___ corporations, which allows the business owners to choose their method of taxation

partnerships; corporations

the owner of an LLC can be

- a person - a partnership - corporation flexible ownership

if the owner of a sole proprietorship wants to incorporate, they must consider all of the following

- double taxation - ability to raise more money

reasons a business might change ownership

- dropping a partner from the firm - reduced restrictions on stock - adding a partner to the firm

many brick and mortar franchisees are using ___ to expand their businesses online to lower costs and better meet the needs o their customers

- e-commerce - websites - technology

reasons that disagreements can ruin a partnership:

- opposing management styles - disagreement over workload - arguing over profits

cooperative

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 having members work a certain number of hours or electing a board of directors that hires professional management are two ways a cooperative is managed ex: farm cooperative initial goal of a(n) farm cooperative was to join together to get better prices for their food products advantages: - do not pay taxes as corporations do - increase economic power

franchisor

a company that develops a product concept and sells others the rights to make and sell the products

a franchise owner will experience the coattail effect when:

a fellow franchisee does something that has an impact on growth and profitability ex: a new mcdonalds opens up nearby a successful mcdonalds on the same street and takes away from their profits

general partnership

a partnership in which all owners share in operating the business and in assuming liability for the business's debts in a general partnership, no matter who creates the debt, all are liable for losses, lawsuits, or bankruptcy. all partners may lose their investments as well as personal assets.

limited liability partnership (LLP)

a partnership that limits partners' risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision a limited liability partnership limits the liability of limited partners to their: initial investment

limited partnership

a partnership with one or more general partners and one or more limited partners

franchisee

a person who buys a franchise

conventional (C) corporation

a state-chartered legal entity with authority to act and have liability separate from its owners--its stockholders investors are not involved in daily operations advantage: access to more capital

S corporations

a unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships to qualify: - have no more than 100 shareholders (all members of a family count as one shareholder) - have shareholders that are individuals individuals or estates, and who (as individuals) are citizens or permanent residents of the US - have only one class of stock - derive no more than 25% of income from passive sources (rents, royalties, interest)

franchise agreement

an agreement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory the failure rate for franchises has been lower than that of other business ventures

leveraged buyout (LBO)

an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing against its assets

general partner

an owner (partner) who has unlimited liability and is active in managing the firm

limited partner

an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment risk of losing their personal assets in a LLP is limited to the amount of their investment

a corporation is formally formed with

articles of incorporation and bylaws

sole proprietorship

business owned/managed by one person

some people dislike the notion of owners, managers, workers, and buyers being separate individuals with separate goals. to meet their needs, they have formed:

cooperatives

The ___ form of business assists people in becoming owners without having to work at the firm

corporate

selling shares of stock to anyone allows a ___ to raise more money to grow

corporation

sharing risk means sharing rewards in a partnership. a partner expects to be rewarded for putting time and money into a firm through

division of profits

franchises are important to the ___ because of the number of new businesses started and jobs created

economy

except for states like delaware and nevada, ___ creates a disadvantage to incorporating

extensive paperwork

the decrease in female franchise owners is caused by a lack of money to cover high start-up costs. this is called the

glass ceiling

sole proprietors can leave their business to their heirs. this is called:

leaving a legacy

although members may choose to reconstitute an LLC after it dissolves, limited ___ ___ is considered a disadvantage of this form of business

life span

___ protects investors' personal assets which makes them more likely to take a risk on investing in a corporation

limited liability

franchisors would like their franchisees to "mirror" their customer bases. therefore, many franchisors, such as Domino's have developed ___ franchisee recruitment initiatives

minority

since there is no stock, LLC ownership is ___, which means LLC members need the approval of the other members in order to sell their interests in the company

nontransferable

acquisition

one company's purchase of the property and obligations of another company

an LLC submits a written operating agreement, similar to a(n) ____ agreement, describing how the company is to be operated

partnership it is very important to develop a partnership agreement or contract to protect your rights and set out each partners' responsibilities

Through flexible distribution of profits and losses, LLC members agree on the ___ of profits/losses to be distributed to each member

percentage

all profits of a sole proprietorship are taxed as ___ income of the business owner

personal

the partnership business entity is not taxed because each partner pays tax on the business's profits as their

personal income

taking a firm ___ is when a corporation decides to maintain, or in some cases regain, control of a firm internally by obtaining all of the stock

private

limited liability company (LLC)

similar to S corp, but without the special eligibility requirements advantages: - limited liability - choice of taxation - flexible ownership rules - flexible distribution of profits and losses - operating flexibility disadvantages - no stock - limited life span - fewer incentives - taxes (double taxed) - paperwork - ownership not transferable four times more likely to succeed than sole proprietorship

partners can bring different __ and ___ into the business that can increase the chances for success of a partnership

skills and perspectives

in order to protect the brand name and image, the franchisor has tight management

standards and controls

a franchise operation is still your business, but you must follow the rules of

the franchise agreement

horizontal merger

the joining of two firms in the same industry ex: soft drink company buys mineral water company

limited liability

the responsibility of a business's owners for losses only up to the amount they invest; limited partners and shareholders (stockholders) have limited liability

franchise

the right to use a specific business's name and sell its products or services in a given territory

partnership

two or more people legally agree to become co-owners of a business

___ liability means partners can lose everything they own if the business loses a lawsuit

unlimited

advantages of sole proprietorship

- ease of starting and ending business - being your own boss - pride of ownership - leaving a legacy - retention of company profits - no special taxes

main types of partnerships are:

- general - limited - master limited

among the questions to ask before franchising internationally is:

- will your intellectual property be protected? - are you able to adapt to franchise regulations in other countries? - can you support global partners?

a franchisee business owner is still their own ___, though they must follow more rules, regulations, and procedures

boss

the fastest way for a foreign firm to enter the US market may be to ___ the operations of a US company

buy

as owners, these people are entitled to all profits that are left after all the corporation's other obligations have been paid

stockholders

attributes that make the initial cost of incorporating a disadvantage

- enlisting the services of accountants - start-up costs associated with documentation - hiring lawyers for consultation

an advantage of starting an online franchise is that

- franchisees pay only a set monthly fee - online franchisees can compete against the world - no upfront fee may be required

jane wants to start a new subway franchise in her town. in the initial stage of investigating, jane must consider all of the following

- how much capital is needed to purchase the franchise - the financial strength of the franchisor - how to terminate the franchise

when analyzing which type of merger a firm uses to grow, we can classify them by whether they are

- in the same industry - different industries - different levels of an industry

individuals can incorporate

- individuals who incorporate do not issue stock to outsiders; do not share all the adv and disadv of large corporations - major advantages are limited liability and possible tax benefits

disadvantages of corporations

- initial cost - extensive paperwork - double taxation - two tax returns (individual/corporate) - size (when too large, becomes too inflexible and are unable to respond quickly to market changes; profitability can suffer) - difficulty of termination - possible conflict with stockholders and board of directors double taxation of a corporation occurs because the company pays tax on income and then the individual shareholders pay income tax on the dividends they receive

reasons why management difficulties are considered a disadvantage of sole proprietorships

- it is hard to attract employees to help run the business due to competition with larger companies offering better benefits - one person is responsible to keep track of inventory, accounting operations and tax records - people good at one skill like selling and may not be good at another skill such as managing

LLCs do have to submit articles of organization and an operating agreement, but do NOT have to:

- keep minutes - file written resolutions - hold annual meetings

advantages of corporations

- limited liability - ability to raise more money for investment - size (can be big/small) - perpetual life (a corporation's existence will not terminate if one or more owners die) - ease of ownership change - ease of attracting talented employees - separation of ownership from management (corporations are able to raise money from many different owners/stockholders without getting them involved in management)

many smaller businesses elect to form a corporation because of the two main advantages of

- limited liability - possible tax advantages

home-based franchises have many advantages, such as:

- low overhead expenses - relief from the stress of commuting - extra time for family activities disadvantage: - feeling of isolation

advantages of franchises

- management and marketing assistance - personal ownership - nationally recognized name - financial advice and assistance - lower failure rate

advantages of partnerships

- more financial resources - shared management and pooled/complementary skills and knowledge - longer survival - no special taxes

an advantage of having one or more partners is that:

- more financial resources are available - the organization may survive for a longer time - more skills and knowledge are available

the Uniform Partnership Act defines the three elements of a general partnership as

- participation in operations - shared profits and losses - common ownership

an advantage of the corporate form of business is that limited liability allows it to:

- raise larger sums of money from investors - borrow larger sums of money

ending a partnership can be difficult because of problems deciding

- the worth of a retiring partner's share - how a partner can retire - how to distribute assets

disadvantages of sole proprietorships

- unlimited liability / risk of personal losses - limited financial resources - management difficulties - overwhelming time commitment - few fringe benefits - limited growth - limited life span

master limited partnership (MLP)

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 attributes: - traded on the stock exchange - taxed like a partnership - acts like a corporation

in addition to the articles of incorporation, a corporation has _____, which describe how the firm is to be operated from both legal and managerial points of view

bylaws

the higher costs of starting up an international franchise are usually counterbalanced by an expanding ___ base and less competition

customer base