BUSN Chapter 6 Test 3

sole proprietorship

Advantages ease of formation, your own boss, pride of ownership, retention of profits, profit is taxed as your income Disadvantages limited financial resources, unlimited liability, limited ability to attract and maintain talented employees, heavy workload and responsibilities, lack of permanence

Business format franchise

a broad franchise in which the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor -Requires the franchisee to follow very specific guidelines while operating the business Ex: Wendy's, McDonalds, Whataburger, etc.

horizontal merger

a combination of 2 firms that are in the same industry -increase the size and market power within the industry Ex: US Airways ___ with American Airlines

Conglomerate Merger

a combination of 2 firms that are in unrelated industries -reduce risk by making the firm less vulnerable to adverse conditions in any single market Ex: Berkshire Hathaway and 3G Capital bought condiment maker, Heinz

Vertical Merger

a combination of firms that are at different stages in the production of a good or service -provide tighter integration of production and increased control over the supply of crucial inputs Ex: Microsoft acquired mobile phone manufacturer Nokia

acquisition

a corporate restructuring in which one firm BUYS another firm Target Firm-- firm being bought by acquiring firm

merger

a corporate restructuring that occurs when 2 formally 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 -Earnings are EXEMPT from federal and state income taxes -has members who pay dues, but CANNOT HAVE STOCKHOLDERS -cannot distribute dividends to its members

Statutory close (closed) corporation

a corporation with a limited number of owners that operates under simpler, less formal rules than a C corporation -No more than 50 stockholders -Not all states allow them

franchise disclosure document

a detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least 14 calendar days before the franchise agreement is signed -Requires by the FTC -written in plain english, so its easy to understand -makes sure you know all the facts before signing the franchise agreement (allows you to do research before signing)

corporation

a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners -an "artificial person"-- can engage in any business activity a natural person can pursue (can enter into a contract, borrow money, own property, pay taxes, enter into a lawsuit) Advantages limited liability, permanence (not affected by the death or withdraw of a stockholder), ease of transfer of ownership, ability to raise large amounts of financial capital, ability to make use of specialized management Disadvantages expense and complexity of formation and operations, complications when operating in more than one state, double taxation of earnings and additional taxes, more paperwork, more regulation, and less secrecy, possible conflicts of interest

LLC (limited liability company)

a form of business ownership that offers BOTH limited liability to its owners AND flexible tax treatment -hybrid form of business ownership -mix between partnership and corporation -owners can elect to have their business taxed as either a corporation or a partnership -a new form of ownership (recent) -owners are called "Members", rather than stockholders -Hire professional managers who have responsibilities much like those of the CEO and top officers of corporations Advantages limited liability, tax pass-through (no double taxation), simplicity and flexibility in management and operation, flexible ownership (can have any number of owners, can include foreign investors) Disadvantages Complexity of formation, annual franchise tax, limits on the types of firms that can form them (banks, insurance companies, and nonprofit organizations cannot form them), differences in state laws (laws vary by states)

sole proprietorship

a form of business ownership with a single owner who actively manages the company -company earnings are treated just like the owner's income -debt company incurs is the owner's personal debts -HIGH RISK Advantages ease of formation, your own boss, pride of ownership, retention of profits, profit is taxed as your income Disadvantages limited financial resources, unlimited liability, limited ability to attract and maintain talented employees, heavy workload and responsibilities, lack of permanence

S Corporation

a form of corporation that avoids double taxation by having its income taxed as if it were a partnership -No more than 100 stockholders, stockholders must be US citizens or permanent US residents

limited liability partnership

a form of partnership in which all partners have the right to participate in management and have limited liability for company debts -theres no need to distinguish limited and general partners in a ___ ___ __ -rules vary state to state

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 Ex: opening another freddys Advantages less risk, training and support provided, brand recognition, easier access to funding Disadvantages costs, lack of control, negative halo effect, growth challenges, restriction on sale, poor execution

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 -General partners have the right to participate fully in managing their partnership -Limited partners cannot actively participate in its management

distributorship

a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it Ex: Arrangement between automakers and the dealerships that sell their cars

Partnership

a voluntary agreement under which 2 or more people act as co-owners of a business for profit -no limit on the number of partners (but usually 2) -formed when they enter into a voluntary ____ agreement (a lot safer to put everything in writing BEFORE it begins, because it prevents conflict and issue that occur throughout and after the ______ Advantages ability to pool financial resources (more owners investing), ability to share responsibilities and capitalize on complementary skills, ease of formation, possible tax advantages (no double taxation) Disadvantages unlimited liability (you are not only liable for your mistakes, but also your ____ mistakes), potential for disagreements, lack of continuity, difficulty in withdrawing

hostile take over

in an acquisition, when the acquiring firm buys the target firm despite the opposition of the target's board and top management

spin offs

occur when a company issues stock in one of its own divisions or operating units and sets it up as a separate company, complete with its own board of directors and corporate officers -after the ____ ___, the stockholders end up owning 2 separate companies, rather than one -does NOT actually generate any additional funds for the firm

carve outs

sells the stock to outside investors, raising additional financial capital

franchisor

the business entity in a franchise relationship that allows others to operate its business using resources it supplies in exchange for money and other considerations

franchise agreement

the contractual arrangement between a franchisor and franchisees that spells out the duties and responsibilities of both parties Includes: terms and conditions, fees and other payments, specific operational requirements, conflict resolution, assigned territory

articles of incorporation

the document filed with a state government to establish the existence of a new corporation

c corporation

the most common type of corporation -a legal business entity that offers limited liability to all of its owners, who are called stockholders

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 -Firms use them to rid themselves of a part of their company that no longer fits well with their strategic plans -allows firms to streamline the opera rations and focus on their core businesses

limited liability

when owners are not personally liable for claims against their firm -owners with it may lose their investment in the company, but their personal assets are protected