Chapter 5 How to Form A Business

Disadvantages of franchises

1. Coattail effects

Three elements of any general Partnership

1. Common ownership 2. Shared profits and losses 3. Right to participate in managing the operations of the business

Advantages of Sole Proprietorship

1. Ease of starting and ending the business 2. being your own boss 3. leaving a legacy 4. Retention of company profits 5. No special taxes

Advantages in a Partnership

1. More financial resources 2. shared management and pooled/complementary skills and knowledge 3. longer survival 4. No special taxes

Disadvantages of LLCs

1. No stock 2. Limited Life Span 3. Fewer incentives 4. taxes 5. paperwork

Disadvantages of Corporations

1. initial cost 2. extensive paperwork 3. double taxation 4. size

Advantages of LLCs

1. limited liability 2. choice of taxation 3. flexible ownership rules 4. flexible distribution of profits and losses 5. operating flexibility

Advantages of Corporations

1. limited liability 2. ability to raise more money for investment 3. size 4. ease of attracting talented employees 5. separation of ownership from management

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 Partnership

1. unlimited liability 2. division of profits 3. disagreements among partners 4. difficulty of termination

General partnership

all owners share in operating the business and in assuming liability for the business debts

Limited Partnership

has one or more general partners and one or more limited partners

Conventional Corporation

is a state-chartered legal entity with authority to act and have liability separate from its owners, its stockholders

S Corporation

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

Franchise agreement

is an arrangement whereby someone with a good idea for a business

Leveraged buyout:

is an attempt by employees, management, or a group of private investors to buy out the stockholders in a company, primarily by borrowing the necessary funds

General partner

is an owner who has unlimited liability and is active in managing the firm

Limited Partner

is an owner who invests money in the business but does not have any management responsibility or liability for losses beyond his or her investment

Acquisition

is one company' purchase of the property and obligations of another company

Cooperative

is owned and controlled by the people who use it, producers, consumers, or workers with similar needs who pool their resources for mutual gain

Limited liability company (LLC)

is similar to an S corporation, but without the special eligibility requirements

Horizontal merger

joins two firms in the same industry and allows them to diversify or expand their products

Vertical Merger

joins two firms operating in different stages of related businesses

Partnership

legal form of business with two or more owners

Limited Liability Partnership

limits partners risk losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision

Master limited partnership

looks much like a corporation in that it acts like a corporation and is traded on the stock exchanges like a corporation but is taxed like a partnership and thus avoids the corporate income tax

Limited Liability

means that the limited partners liability for the debts of the business is limited to the amount they out into the company; their personal assets are not at risk

Home-Based Franchises

offer many obvious advantages, including relief from the stress of commuting, extra time for family activities, and low overhead expenses

Merger

result of two firms joining to form one company

Franchisor

sells the rights to use the business name and sell a product or service to others

unlimited liability

the risk of personal losses: any debts or damages incurred by the business are your debts and you must pay them, even if it means selling your home, your car, or whatever else you own

Conglomerate Merger

unites firms in completely unrelated industries in order to diversify business operations and investments