business ch 5

Sole proprietorship

A business owned, and usually managed, by one person

Acquisition

One company's purchase of the property and obligations of another company.

Percentage of businesses

Sole proprietorships, 72 percent Corporations, 20 percent Partnerships, 8 percent

Horizontal merger

The joining of two firms in the same industry.

Multinational corporations

operate in several countries.

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. -Worldwide, co-ops serve one billion members! -Members democratically control the business by electing a board of directors that hires professional management.

Individuals Can Incorporate

-Anyone - truckers, doctors, plumbers, athletes and small business owners can incorporate. -Normally stock is not issued to outsiders when individuals incorporate, so the advantages and disadvantages are not exactly the same as for large corporations. -Major advantages are limited liability and possible tax benefits.

Franchising in Global Markets

-Canada is the most popular target for U.S.-based franchises. -Franchisors are finding it easier now to move into China, South Africa, the Philippines, and the Middle East. -International franchising goes both ways—some foreign franchises have come to the U.S., including Kumon Learning Centers and H&R Block.

Qualifications for S Corporations

-Have no more than 100 shareholders -Have shareholders that are individuals or estates, and who (as individuals) are citizens or permanent residents of the U.S. -Have only one class of stock -Derive no more than 25% of income from passive sources >If an S corporation loses its S status, it may not operate under it again for at least 5 years.

E-Commerce in Franchising

-Most brick-and-mortar franchises have expanded online. -Many franchisors prohibit franchisee-sponsored sites because conflicts can erupt. -Sometimes "reverse royalties" are sent to franchisees who believe their sales were hurt by the franchisor's site. -Other franchises are solely based online.

Home-Based Franchises Advantages:

-Relief from commuting stress -Extra family time -Low overhead expenses

Diversity in Franchising

-Women own about half of U.S. companies, yet ownership of franchises is about 21 percent. -More women are becoming franchisors. Auntie Anne's, Decorating Den, and Build-a-Bear were started by women. -DiversityFran is an initiative to build awareness of franchising opportunities within minority communities. -Dunkin Brands' Diversity in Franchising Initiative offers financing and development support to minorities and military veterans. -Over 20 percent of franchises are minority-owned.

Advantages of Sole Proprietorships

1-Ease of starting and ending the business 2-Being your own boss 3-Pride of ownership 4-Leaving a legacy 5-Retention of company profits 6-No special taxes

Disadvantages of Sole Proprietorships

1-Unlimited liability 2-Limited financial resources 3-Management difficulties 4-Overwhelming time commitment 5-Few fringe benefits 6-Limited growth 7-Limited life span

Disadvantages of Corporations

1. Initial cost 2. Extensive paperwork 3. Double taxation 4. Two tax returns 5. Size 6. Difficulty of termination 7. Possible conflict with stockholders and board of directors

Home-Based Franchises Disadvantages:

1. Isolation 2. Long hours

Disadvantages of LLCs:

1. No stock, therefore ownership is nontransferable 2. Limited life span 3. Fewer incentives 4. Taxes 5. Paperwork

Limited liability company (LLC)

A company similar to an S corporation but without the special eligibility requirements.

Corporation

A legal entity with authority to act and have liability separate from its owners.

Partnership

A legal form of business with two or more owners.

General partnership

A partnership in which all owners share in operating the business and in assuming liability for the business's debts.

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.

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.

Limited partnership

A partnership with one or more general partners and one or more limited partners.

Conventional (C) Corporation

A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders).

S corporation

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships.

Franchise agreement

An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. More than 733,000 franchised businesses operate in the U.S., employing approximately 13.3 million people.

Leveraged buyout (LBO)

An attempt by employees, management, or a group of private investors to buy out the stockholders in a company. LBOs have ranged in size from $50 million to $34 billion and have involved everything from small family businesses to giant corporations. Business acquisitions are not limited to U.S. buyers.

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.

Percentage of total receipts:

Corporations, 81 percent Partnerships, 13 percent Sole proprietorships, 6 percent

Using Technology in Franchising

Franchisors use technology, including social media, to: Extend their brands Meet the needs of both customers and franchisees Expand their businesses

Types of Partners

General partner and limited partner

Disadvantages of Franchises

Large start-up costs Shared profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors

Advantages of Corporations

Limited liability Ability to raise more money for investment Size Perpetual life Ease of ownership change Ease of attracting talented employees Separation of ownership from management

Advantages of LLCs:

Limited liability Choice of taxation Flexible ownership rules Flexible distribution of profits and losses Operating flexibility

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

Vertical merger

The joining of two companies in different stages of related businesses.

Limited liability

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

unlimited liability

The responsibility of business owners for all of the debts of the business.

Merger

The result of two firms forming one company

Disadvantages of Partnerships

Unlimited liability Division of profits Disagreements among partners Difficulty of termination

Quasi-public corporations

are chartered by the government as an approved monopoly to perform services to the general public.

Professional corporations

are owned by those who offer professional services.

Foreign corporations

do business in one state but are chartered in another

Alien corporations

do business in the United States but are chartered (incorporated) in another country.

Domestic corporations

do business in the state in which they are chartered (incorporated).

Nonprofit (or not-for-profit) corporations

don't seek personal profit for their owners.

Closed (private) corporations

have stock that is held by a few people and isn't available to the general public.

Types of Mergers

horizontal, vertical, conglomerate

Open (public) corporations

sell stock to the general public.

S corporations have

shareholders, directors, and employees, plus the benefit of limited liability. Profits are taxed only as the personal income of the shareholders.

Conglomerate merger

the joining of firms in completely unrelated industries