Chapter 5 Business
In a ________, members democratically control the business by electing a board of directors that hires professional management to run the business.
A cooperative is a business owned and controlled by the people who use it.
A few years ago, in order to gain market share, Blackboard™, a well-known learning management system software company used by many colleges and universities, joined forces with WEB CT™, another learning management system software company. Both companies were in the same industry and originally competed against one another. In business, we would call the joining of these two firms a(n) ________.
A horizontal merger is the joining of two firms in the same industry, often producing very similar products or services. This strategic move is usually for the purpose of the purchasing firm increasing its market share and competitive advantage.
Partnerships refer to more than one owner. A limited partnership ______________.
A limited partnership consists of at least one general partner actively involved in the business, and one limited partner who has invested in the business and seeks to realize a portion of the profits, but is not actively involved in the operational decision making.
When Ben joined his Uncle's oil exploration company in southern Oklahoma, he was given several hundred shares of stock in the firm, and was officially made a partner. The firm's accountant explained that the company paid taxes the same way as regular partnerships, by passing the profits through to each partner. Ben could purchase more shares of the company on a public stock exchange, as long as someone was willing to sell his/her shares. This firm was likely a special form of ownership called ___________________.
A master limited partnership pays taxes like other partnerships, by passing the profits through to the individual owners, and thus accounting for those profits on each owner's federal tax return. Similar to a corporation, the master limited partnership's shares actually trade on a stock exchange.
When Greg started his window-washing business, he wanted to keep things simple. As recommended, he filed a record of the business with the state where he resided. He carefully watched his expenses including state filing expenses and licensure requirements. Greg's financial resources were limited, but so were his concerns; after all, "he was the business." Greg's business is a ___________________.
A sole proprietorship is an easy form of business ownership to form with limited start-up expenses, unlimited liability, and no special taxes, meaning the profits from the business are taxed at the individual owner's personal income tax rate.
Which form of business ownership is the most common in the United States?
A sole proprietorship is an easy form of business ownership to form with limited start-up expenses, unlimited liability, and no special taxes, meaning the profits from the business are taxed at the individual owner's personal income tax rate.
Maverick Motors was a small manufacturing company that made motors for compressors used in air conditioning systems. Maverick purchased the Calvert Compressor Company, which was Maverick Motors' largest customer. This strategic decision bringing the two companies together is termed a ________.
A vertical merger is the joining of two firms at different stages of related businesses.
Which of the following lists characteristics typical of a C corporation?
C corporations are taxed separate from their owners; and owners enjoy limited liability.
When Patty Sloane bought a Tidy Maid franchise, she became a:
Franchisees are the people who buy franchises.
International franchising is:
International franchising is an area that offers good opportunities for both large, established franchises (i.e. McDonald?s) and smaller, emerging franchises that offer distinctive products and opportunities.
Joe and Mark would like to start a new business selling a product new to the U.S., the Peraves Monotracer. This is a motorcycle-type vehicle that is encased in a sort of shell, so that the rider can ride this product in any kind of weather. Joe and Mark have done a considerable amount of research on this product, and think it would be successful in the U.S. However, they are still concerned about the risk of a new venture and both would like to avoid losing any personal assets. They should organize their firm as a:
Joe and Mark would want to organize their firm as a corporation because of limited liability. They would also have the ability to raise more money for investment.
The owners of a corporation are called:
Stockholders are the owners of corporations. However, they are not liable for the debts or other problems of the corporation beyond the money they invest.
A brother and sister team, Jack and Julie took over the family's Italian restaurant business when their father died. Julie operated one of the three locations, kept the firm's books, and ordered supplies and equipment for all three locations. Jack operated the other two restaurants. In the beginning, it was difficult. Jack thought he should get 2/3 of the company profits because he was responsible for the profitability on two out of three locations. Julie saw it differently because she felt her responsibilities spanned the entire business. What's important for them to remember in their situation is ________.
Julie and Jack are general partners because both are actively involved in the company. As such, both have unlimited liability. If the company is not able to pay its bills, the burden falls to both partners. If one or the other partner is unable to pay, the burden falls on the other partner to pay all.
If the employees of San Simeon Company successfully borrowed a large sum of money and purchased the firm from its current owners, we would call this event a(n) ___________.
Leveraged buyout (LBO) is an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing. The funds borrowed are used to buy out the stockholders in the company. The employees, managers, or investors now become the owners of the firm. When managers buy all of the stock of a firm and take it off the open market, it is referred to as taking the firm private.
In his search for a franchised business that would satisfy his passion for the outdoors and also earn him a decent living, Asher noted that the shared profit criterion required of franchisors had significant variance. Some required franchisees to pay 8% of their monthly revenues to the franchisor. Others required 3% of the profits. In business we refer to this obligation as a ______________.
Royalties are shared profit obligations that the franchisee agrees to pay the franchisor. This payment can be in the form of a percentage of the revenues or a percentage of the profits. Shared profits are usually considered a disadvantage of owning a franchised business.
Advantages of ________ include reduced start-up fees and no territory restrictions.
Starting an online franchise has its advantages in reduced franchise fees, lower start-up costs, and no territory restrictions.
A firm's management purchases all the issued and outstanding stock of the firm and takes the company off the stock market. The management of this company has engaged in ____________.
Taking a firm private involves the efforts of a group of stockholders or management to obtain all of the firm's stock for themselves.
When Dave, Dan, and Darwin lost their jobs during the recent recession, they pooled their resources, borrowed a little more, and bought a couple of houses to renovate. Darwin was a single guy with two other residential properties that he rented out. Dan and Dave had families with college-age children; they owned their homes, and Dan had a wife who worked at a professional job. All three were concerned about the risk involved in owning their own business, particularly the risk of losing personal assets. As their advisor, which of the following forms of business ownership would you recommend?
The advantage of the LLC, limited liability company, is limited liability (members are only liable for the funds each invested) and a choice of how the organization will be taxed. In this case, the partners were concerned with liability. The other three forms of ownership have unlimited liability.
One of the key advantages of a franchise is:
The advantages of a franchise include: (1) management and marketing assistance, (2) personal ownership, (3) nationally recognized name, (4) financial advice and assistance, and (5) lower failure rate.
When your profitable franchise fails simply because other franchisees have failed, this is known as the:
The coattail effect is when the actions and success or failure of other franchises have an impact on your future growth and profitability, positively or negatively.
When going into a partnership, you should always:
When starting a business, a good way to protect yourself and all partners is to put your partnership agreement in writing.
Unlimited liability means ___________.
When the business accepts unlimited liability, any debt the business incurs is the burden of the owner(s). The owner assumes all liability for paying these bills.
