(Learning Objective) Module 6: Forms of Ownershop
Compare the advantages and disadvantages of sole proprietorships
>The advantages of sole proprietorships include ease of starting and ending, ability to be your own boss, pride of ownership. Retention of profit, and no special taxes >The disadvantages of sole proprietorships include unlimited liability, limited financial resources, management difficulties, overwhelming time commitment few fringe benefits, limited growth, and limited life span
Explain the role of cooperatives
Cooperatives are organizations owned by consumer-members >Some people form cooperatives to acquire more economic power than they would have as individuals >Small businesses often form cooperatives to gain more purchasing, marketing, or product development strength
Compare the advantages and disadvantages of corporators and summarize the differences between C corporations, S corporations, and limited liability companies
Definition - corporation: state-chartered legal entity with authority to act and have liability separate from its owners >Advantages of corporations -Limited liability, ability to raise more money for investment, size, perpetual life, ease of ownership change, ease of attracting talented employees, and separation of ownership from management >Disadvantages of corporations -Initial cost, extensive paperwork, double taxation, two tax returns, size, difficulty of termination, and possible conflict with stockholders and board of directors Two reasons for incorporating: special tax advantages and limited liability Advantages of S corporations >Limited liability (like a corporation) and simpler taxes (like a partnership) S corporation qualifications -Company must have fewer than 100 stockholders (members of a family count as 1 shareholder) -Stockholders must be individuals or estates -US citizens or permanent residents -Company cannot derive more than 25% of its income from passive sources Advantages of limited liability companies -Limited liability, choice of being taxes as partnerships or corporations, flexible ownership rules, flexible distribution of profits and losses, and operating flexibility
Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising
Franchise: an arrangement to buy the rights to use the business name and sell its products or services in a given territory Franchisee: a person who buys a franchise Benefits and drawbacks of being a franchisee >Getting management and marketing assistance, pride of personal ownership, financial advice and assistance, and lower failure rate Major challenge to global franchises: often difficult to transfer an idea or produce that worked well in the US to another culture >Essential to adapt to the region
Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private
Merger: result of two firms forming one company Three types: vertical mergers, horizontal mergers, and conglomerate mergers Leveraged buyouts: attempts by managers and employees to borrow money and purchase the company >Individuals who, together or alone, buy all the stock for themselves are said to take the company private
Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships
Three key elements of a general partnership: common ownership. Shared profits and losses, and the right to participate in managing the operations of the business General partners vs limited partners >General partners are owners (partners) who have unlimited liability and are active in managing the company >Limited partners are owners (partners) who have limited liability and are not active in the company >Unlimited liability means the sole proprietors and general partners must pay all debts and damages caused by their business -may have to sell their houses, cars, or other personal possessions to pay business debts >Limited liability means the corporate owners (stockholders) and limited partners are responsible for losses only up to the amount they invest -Their personal property is not at risk Master limited partnership acts like a corporation but is taxed like a partnership >Advantages of partnerships -More financial resources, shared management and pooled/complementary skills and knowledge, longer survival, and no special taxes >Disadvantages of partnerships -Unlimited liability, division of profits, disagreements among partners, and difficulty of termination
