BUSINESS INTRO: Chapter 6 - Key Terms and Questions

corporate bylaws

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

franchisor

the business entity in a franchise relationship that allows others to operate their 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 in detail

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 stock-holders of a corporation to represent their interests

general corporation

the most common type of business corporation, where ownership offers limited liability to all of its owners, also called stockholders

limited liability

when owners are not personally liable for claims against their firm. These type of owners may lose their investment in the company, but their personal assets are protected.

no limit, member managed or manager managed, limited, taxed only as income to owners, must file articles of organization with state

List the following characteristics of a limited liability company: Number of owners, participation in management, owners liability, tax implications, state filing requirements.

1, managed by proprietor, unlimited, taxed as income to owner, no special filing required

List the following characteristics of a sole proprietorship: Number of Owners, Participation in Management, Owners Liability, Tax implications, State Filing Requirements

Advantages: 1) Avoidance of double taxation. 2) Stockholders have limited liability Limitations: 1) Can have no more than 100 stockholders 2) Each stockholder must be a U.S. citizen

What are the key advantages of an S corporation? What are the limitations?

Pros: 1) simplest and least expensive form of ownership 2) offers owner lots of flexibility 3) owner keeps all of the profits Cons: 1) has unlimited liability for debts of business 2) owner must work long hours and assume much responsibility 3) usually have limited amount of funds for expansion

What are the pros and cons of operating a business as a sole proprietorship?

Common Objective: Reduce risk by making the firm less vulnerable to adverse conditions in any single market. Example: GE's move into the entertainment industry by acquiring RCA in 1986 and Vivendi Universal's movie and television units in 2004.

What is the common objective of a conglomerate merger? What is an example of a conglomerate merger?

1) They give owners limited liability while avoiding the problem of double taxation 2) Fewer ownership restrictions than C corporations 3) LLCs also are subject to fewer regulations 4) Less strict management requirements than C corporations

Why have limited liability companies become increasingly popular?

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

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 partners and limited partner. Both partners contribute financially and share profits. General partners actively manage the company, accepting unlimited liability for debts while limited partners do not actively manage in exchange for limited liability.

partnership

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

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

limited liability company (LLC)

form of business ownership which combines the limited liability of corporations with the tax pass-through of partnerships, eliminating the problem of double taxation

limited liability partnership (LLP)

form of partnership in which all partners have the right to participate in management and have limited liability for company debts

The firm being acquired ceases to exist as an independent entity, while the acquiring firm continues to operate.

How can corporations restructure using mergers and acquisitions?

1) the owners, stockholders, have limited liability 2) They can raise financial capital through issuing shares of stocks and bonds 3) They have unlimited life

List reasons why corporations have become the dominant form of business ownership.

no limit (on number of stockholders); stockholders do not participate, elected board directors appoints corporate officers who manage the corporation, limited, earnings subject to double taxation, also dividends are taxed as income to stockholders, must file articles of incorporation with state

List the following characteristics of a general corporation: Number of owners, participation in management, owners liability, tax implications, state filing requirements.

2 or more, all partners participate, unlimited, taxed as income to owners, no special filing required

List the following characteristics of a general partnership: Number of owners, participation in management, owners liability, tax implications, state filing requirements.

Advantages: 1) Can pool financial resources 2) Ability to share responsibilities and capitalize on complementary skills 3) Ability to Share responsibilities and Capitalize on complementary skills 4) Ease of formation 5) Tax advantages Disadvantages: 1) Unlimited liability 2) Potential for disagreements 3) Difficulty in withdrawing from a partnership 4) Lack of continuity

What are the advantages of General Partnerships? What are some disadvantages of General Partnerships?

Advantages for Franchisor: 1) revenue gained without need to invest it's own money. Advantages Franchisees: gain the right to use a well-known brand name and proven business methods 2) they receive training and support from franchisors Disadvantage Franchisor: 1) Dealing with a large number of franchisees can be difficult for franchisors 2) Irresponsible franchisees can have a negative impact on the entire organization Disadvantages Franchisee: 4) Fees must be paid by the franchisee 5) Loss of control of the business for franchisees

What are the advantages of franchising for the franchiser and franchisee? What are the disadvantages of franchising for the franchiser and franchisee?

Common Objectives: 1) Increase size and market power within industry. 2) Improve efficiency by eliminating duplication of facilities and personnel. Example: 2006 merger of telecommunications giants SBC and AT&T

What are the common objectives of a horizontal merger? What is an example of a horizontal merger?

Common objectives: 1) Provide tighter integration of production 2) Increased control over supply of crucial inputs Example: 1996 merger of Time Warner with Turner Broadcasting

What are the common objectives of a vertical merger? What is an example of a vertical merger?

1)sole proprietorship 2) General Partnership 3) General Corporation 4) Limited Liability Company

What are the four major forms of business ownership?

Advantages: 1) Earnings are exempt from federal and state income taxes 2) Members and directors have limited liability 3) Individuals who contribute money or property to the nonprofit can take a tax deduction Limitations: 1) Has members but not stockholders 2) Cannot distribute dividends to the members 3) Must keep accurate records and file paperwork to document taxexempt status

What are the key advantages of a nonprofit corporation? What are the limitations?

Advantages: 1) Can operate under simpler arrangements than conventional corporations. 2) All owners can actively participate in management while still having limited liability Limitations: 1) Number of stockholders limited 2) Stockholders normally can't sell their shares to the public without first offering the shares to existing owners 3) Not all states allow formation of this type of corporation

What are the key advantages of a statutory close corporation? What are the key limitations?

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

vertical merger

a combination of firms at different stages in the production of a good or service

conglomerate merger

a combination of two firms that are in unrelated industries

horizontal merger

a combination of two firms that are int he same industry

franchising

a contractual relationship in which an established business entity allows others to operate a business using unique resources that it supplies in exchange for monetary payments and other considerations

acquisition

a corporate restructuring in which one firm buys another. Afterwards, the target firm (the one being purchased) ceases to exist as an independent entity, while the acquiring firm continues to operate

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 general corporations

statutory close corporation

a corporation with a limited number of owners that files special articles of incorporation allowing it to operate under simpler, less formal rules than a general corporation

corporation

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