Entrepreneurship Test 3
Standard contracts
company can just fill in the blanks as needed
Specialty contracts
unique contract terms, large dollar amounts at stake
Design patent
A 14-year patent for a new, original, and ornamental design for an article of manufacture.
Utility patent
A 20-year patent covering a process, machine, article of manufacture, composition of matter, or any new or useful improvement of an existing one.
Hourly fees
A basis for legal charges in which the rate is based on a price per hour. Often lawyers will charge for fractions of an hour
Property
A general term for real estate, but it can also be applied as a legal term for anything owned or possessed
Check the box taxation
A choice LLCs can make on their tax returns to be taxed as a corporation or a partnership
Articles of partnership
Agreement between the partners of a firm on matters pertaining to the formation and operation of the partnership
Joint venture
An agreement between two or more entities to pool resources in order to complete a project
Safety stock
An amount of inventory carried to ensure that you will not run out of inventory because of fluctuating levels of sales
Tax management
An estate planning strategy which focuses on minimizing estate tax payments.
Employee referral
An underused, low-cost method for finding workers that rewards your employees for recommending potential candidates that would be a great employee fit.
Fidelity bonds
Bonds that repay employers for losses caused by dishonest or negligent employees also called dishonesty bonds
Word of Mouth
Discounts, Local signage, Facebook, Cooperative advertising
Contingency fee
Fee paid by a client to an attorney for legal services that is dependent upon the outcome of a case
Payback period
The amount of time it takes a business to earn back the funds it paid out to obtain a capital asset
Microinventory
The purchase of inventory only after a sale is made; very typical with Internet firms
Liability of newness
The set of risks faced by firms early in their life cycles that comes from a lack of knowledge by the owners about the business they are in and by customers about the new business.
Whole of life costs
The sum of all costs of capital assets, including acquisition, ownership, operation, and disposal
LLC
This business form is still relatively new. Limited liability feature. Allows more investors. Allows other corporations to hold stock. May have as few as one "member". Flexible profits. Owners avoid double taxation. Cost of formation is low. Some states apply limits
Slack resources
Time off from work, a slower pace at work, or hiring additional personnel to take on more of the tasks of the owner are all ways that profits can be used to make the owner's life easier. Used that way, the extra profits are called slack resources by economists, because they can be rechanneled into the business if needed.
Diversify
To invest in multiple investments of differing risk profiles for the purpose of reducing overall investment risk
Quality
a product's or service's fitness for use, measured as durability, reliability, serviceability, style, ease of use, and dependability
Contracts
agreements in which the parties exchange promises
Probationary period
trial period in which an employee has temporary status before a formal offer to work full time is presented
Right amount of inventory is determined by?
Cost of processing an order Cost of keeping merchandise in inventory Cost of lost sales if you run out Time it takes to receive inventory after it's ordered
Job description
Defines and discusses all the essential knowledge, skills, and abilities that are needed to fill a position.
Subchapter S Disadvantages
Formation process is cumbersome and expensive. Limited shareholder numbers. Currently limited to 75. Significant limitation for a company that wishes to go public
Off-the-job
Includes lectures, special study, videos, television conferences, case studies, role-playing, simulation, programmed instruction, and laboratory training
Equipment
Machinery, tools, or materials used in the performance of the work of the business
Waiver
Part of a contract in which a party intentionally gives up legal rights or claims
Publicity
Press releases, Public speaking, Donate your product or service
Intellectual property
Property coming from some sort of original thought; for example, patents, trade secrets, trademarks, and copyrights.
Harvest
Recover value through a sale of a firm or its assets.
Success profits
Returns at levels higher than the entrepreneur could make working for others.
Substitution profits
Returns intended to equal and replace the salary or wages the entrepreneur could draw working for someone else.
Factoring
Selling the rights to collect accounts receivable to an entity outside your business (typically receive 75-80% of collectable amount).
Infringer
Someone who uses intellectual property without the permission of the owner.
Insurable value
The amount of an asset for which a company will write an insurance policy
Bootstrapping
Using funds generated by business operations to capitalize growth
Plant patent
A 20-year patent that covers new strains of living plant organisms, algae, or macro fungi.
Legal entity
A being, human or nonhuman, such as a corporation, that is recognized as having rights and duties, such as the right to own property
Sole proprietorship
A business owned by a single individual who is responsible for all debts and claims against the business
Credit reporting agency
A business that collects, collates, and reports information concerning an entity's use of debt
Return on investment (ROI)
A capital budgeting equation used to measure the relationship between initial investment and the profits that are expected to be received from making the investment
Subcontract
A contract by which a new party agrees to perform a duty that one of the original parties to a contract was already legally obligated to perform.
Physical inventory
A count of all the inventory being held for sale at a specific point in time
Debt
A legal obligation to pay money in the future
Meritocracy
A management philosophy of selecting and promoting people based solely on their being the most capable person for the job.
Financial leverage
A measure of the amount of debt relative to total investment
Flat fees
A method of billing for lawyers in which a fixed amount is paid for a certain task
Internal control
A set of rules and procedures that work to limit the opportunity for employee theft or malfeasance
Economic order quantity (EOQ)
A statistical technique that determines the quantity of inventory that a business must hold to minimize total inventory cost
Accounts receivable
money that is owed to your business by your customers Relatively few small businesses today provide credit to customers
Employee fit
the match between the needs, expectations, and culture of the small business with the expectations and the skills of the individual employee
Arbitration
A dispute resolution process held instead of court cases in which both sides present their case to a legal professional
Retainer
A fee paid by a client to an attorney to engage the attorney's services
Workout
A form of business termination in which the firm's legal or financial obligations are not fully met at closing.
Litigation
A formal dispute resolution method that operates using the court system, typically with a lawyer representing each party
Employee stock ownership plan
A formalized legal method to transfer some or all of the ownership of a business to its employees.
Plant
A general term for the facilities of a business
Patent
A grant by the U.S. government to an inventor for an idea that is new, useful, and non-obvious, giving the inventor the exclusive right to make, use, or sell his idea
Capital lease
A lease in which at the end of the lease period the asset becomes the property of the lessee, possibly with an additional payment
Corporation
A legal "artificial" entity that is formed by filing specific documents with a state government
Tax abatement
A legal reduction in taxes by a government
Consolidation
A transfer method in which a small business is bought by a larger firm for the purpose of quickly growing the larger firm.
Separation of duties
A type of internal control that separates the physical control of an asset from the person accounting for that asset
Hold harmless
A type of waiver in which a party agrees not to hold another party responsible for certain events
Deductible
An amount of loss that will not be paid by an insurance company
Transfer
An endgame strategy in which ownership is moved from one person or group to another.
Termination
An endgame strategy in which the owner closes down a business
Liquidity enhancement
An estate planning strategy which focuses on generating cash to cover likely estate taxes.
Estate freeze
An estate planning strategy which focuses on transferring assets to heirs when the asset costs are low.
Bankruptcy
An extreme form of business termination which uses a legal method for closing a business and paying off creditors when debts are substantially greater than assets.
Foundation
An institution to which private wealth is contributed and from which private wealth is distributed for public purposes
Inventory valuation
Determination of the amount of assets held by the firm for sale or production
Tax credits
Direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria
Trademark
Distinctive word, slogan, or image that identifies a product and its origin.
Articles of organization
Document setting forth information about a limited liability company that is filed with the state to establish an LLC
Pass through (taxation)
Earnings of the business are distributed to the business owners and those owners pay individual tax on the earnings
Single taxation
Earnings of the business are taxed once with the owners paying the taxes
Double taxation
Earnings of the business are taxed twice with the business as well as its owners being subject to tax
Key employees
Employees whose experience and skills are critical to the success of a business Loss of key employees is a particularly acute risk for small businesses
Copyright
Exclusive right given to the creator of a literary or artistic work to make use of that work.
Assumed name filing or a fictitious name filing
Filing made with a state(s) in which the business operates disclosing the trade name or assumed name of the business along with the owners of the business
Bar coding
Obtaining a Universal Product Code number and scan-ready visual tag, and printing it on the product or its packaging. Bar codes can then be scanned and recognized by others
Subchapter S Advantages
Owner's limited liability. Potential tax benefit. Relatively easy formation. Compared to the Subchapter C. Legitimacy in the market
Advantages
Owners report profit or losses on their personal income tax. Some business expenses may be claimed. Easy to establish and easy to dissolve
Exculpatory clause
Part of a contract in which a party to the contract states that he or she will not be responsible for certain actions.
Noncompete clause
Part of a contract in which a person agrees not to open a certain type of business or seek employment doing certain things in a particular area for a period of time.
Disadvantages
Partners are jointly liable for all debts. Partners have a responsibility to watch out for the best interests of other partners
Product liability
Payment for injury or damage that occurs during the use of the business's products
Serial entrepreneurs
People who open multiple businesses throughout their career.
Independent contractors
Persons working to achieve a certain goal without being subjected to substantial controls by another
4 steps to structure a negotiation
Prepare what you need to achieve Position by putting your best foot forward Propose solutions that provide value and balance Pounce when agreement on any part of the negotiation appears at hand
Small business investment companies
Private businesses that are authorized to make SBA insured loans to start-ups and small businesses
Replacement value
The cost incurred to replace one asset with an identical asset
Piercing the veil
The dissolution of a corporate form, making it back into a sole proprietorship or general partnership, if the court finds that the owner carelessly mixed up personal and business assets or finances
Risk
The level of probability that an investment will not produce expected gains
Business risk
The level of probability that the future economic state of the business will be worse than expected
Reorganization
The popular name for a Chapter 13 bankruptcy in which a bankrupt firm continues to operate while paying off debts identified by the bankruptcy trustee
Liquidation
The popular name for a Chapter 7 bankruptcy in which a bankrupt firm's assets are sold by the bankruptcy trustee and the proceeds used to pay the firm's debts.
Just-in-time inventory
The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer
Fair market value
The price at which goods and services are bought and sold between willing sellers and buyers in an arm's-length transaction
Capital budgeting
The process of deciding among various investment opportunities to create a specific spending plan
Optimum capital structure
The ratio of debt to equity that provides the maximum level of profits
Business life cycle
The sequence or pattern of developmental stages any business goes through during its life span.
Initial public offering (IPO)
Transfer method describing the first-time public sale of a stock listed on a public stock exchange.
LLP Limited Liability Partnership
Two classes of partners: General partner, Limited partners who can work for the firm but cannot actively manage. One partner must be the general partner
Partnership
Two or more people cooperating to conduct a business enterprise
Fair Credit Reporting Act
U.S. federal legislation specifying consumers' rights vis à vis credit reporting agencies
Gift
Valuable assets or services donated to the business without any obligation to repay or give up any ownership interest (typically strings are attached to gifts).
Personnel insurance
available to protect both you and your employees from specific risks Life, Disability, Medical coverage
Intellectual property rights
comprise the legal rights to use unique features of products or services that provide competitive advantage
Credit insurance
covers abnormal losses from credit customers not paying their bills
Business interruption insurance
funds to pay the ordinary operating expenses of your business should it be forced to close temporarily
Medical
most highly desired form of insurance for most employees
Nepotism
A management philosophy of selecting and promoting people based on family ties.
Pull-through system
A term for just-in-time inventory systems in which product is ordered and placed into production only after a sale has been completed
Community development organization
An organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area
Accelerator
An organization that supports startup technology businesses by providing inexpensive office space, a variety of support services, and resources Most are associated with universities
Capital assets
Assets that are expected to provide economic benefits for periods of time greater than one year
independent contractor (Characteristics)
Behavioral: The contractor solely decides how the work is to be done. Financial: The contractor pays his own expenses directly Relational: The independent contractor is employed for a project and the service the contractor provides is not central to the operation of the business
Walkaways
Business terminations in which the entrepreneur ends the business with its obligations met.
credit card
Card entitling one to revolving credit that is not tied to any particular asset, does not have a set repayment schedule, typically has a set upper limit, and is usually tied to a much higher interest rate than that of a bank loan
Open-book policy
Concept that key employees should be able to see and understand a firm's financials should have a part in moving the numbers in the right direction should have a direct stake in the strategy and success of the firm.
Trade secret
Confidential information within a company that gives that company a competitive advantage
Coverages
Contractual provisions of insurance policies that specify what risks the insurance company is assuming
Cost of owning
Cost incurred in financing, insuring, taxing, or tracking an asset
Three elements to most aspects of business law:
Finding the right information, Negotiating the specific outcome you want Taking care of the paperwork associated with it
Grants
Gifts of money made to a business for a specific purpose
Virtual employees
Independent contractors who provide specialized business services or support from a distance, through the Internet, telephone, fax, or another method of communication.
Vicarious (indirect) liability
Indirect liability or responsibility for the actions of another.
Tax codes
Laws and regulations that specify the requirements of taxation include franchise or corporation taxes, income taxes, employee taxes, sales and use taxes, and property taxes
Internet recruiting
Method of recruiting that allows you to search a résumé database or post a job description to the Web A small business owner who knows exactly what he or she wants can use filters to search vast numbers of résumés with pinpoint accuracy
Employee theft
Misappropriation of business property by employees of that business
Equity capital
Money contributed to the businesses in return for part ownership of the business
Outside equity
Money from selling part of your business to people who are not and will not be involved in the management of the business
Intangible property
Property that has no value of its own but that represents value, such as a stock certificate.
Supplemental profits
Returns above costs intended as a secondary income for entrepreneurs (where self-employment is secondary to their main job).
Choosing a Business Form
Six major factors at play: Personal liability of the business owner Taxation of both the entity and its owners Complexity and organizational costs in setting up Control of the business Continuity of the business Ability of the business to raise capital
Collateral
Something of value given or pledged as security for payment of a loan May consist of financial instruments, such as stocks, bonds, and negotiable paper, or of physical goods, such as trucks, machinery, land, or buildings
Protected classes
States of being that are expressly prohibited from suffering discrimination: race, color, religion, sex, national origin, gender, age, or disability
On-the-job training
Techniques include orientations, job instruction training, apprenticeships, internships and assistantships, job rotation, and coaching. Delivered to employees while they perform their regular jobs
Living wage
The amount needed for a person (or family of a particular size) to meet the basic necessities of life from a single job.
Periodic inventory
process of physically counting business assets on a set schedule
Mediation
the dispute is put to a neutral third party who is not a judge
Theft insurance
normally included in insurance on physical assets
Point-of-sale system
Hardware and software combinations that integrate inventory management directly into accounting software
Regulation of the workplace
Laws and governmental rules that limit the freedom of business owners to manage their businesses as they please
Key person
protects you in the event that a key employee dies or is disabled and cannot work
Life insurance
provided to employees to provide security for their families
Perpetual inventory
recording the receipt and sale of each item as it occurs
Supply chain
the line of distribution of a product from its start as materials outside the target firm to its handling in the target firm to its handling by sellers into the hands of customers
Limited partnership
A legal form of business organization that is created by filing required documentation with a state government One or more partners may have no liability for the debts and actions of the partnership
Limited liability company (LLC)
A legal form of business organization that is created by filing required documentation with a state government. Have a choice, under federal tax law, of being taxed as either corporations or partnerships
Pledging receivables
Giving a third party legal rights to debts owed your business in order to provide assurance that borrowed money will be repaid (receivables used as collateral for loan - loan typically 50% of pledged amount).
general partner
In an LLP, the individual considered the manage of the firm, who as such, has unlimited liability for the debts or judgments against the firm
Buyout insurance
Insurance that provides money to owners of a business to buy the shares of any deceased owner from that owner's heirs
Operating lease
A long-term rental in which ownership of the asset never passes to the person paying for the lease
Optimum stocking level
The amount of inventory that results in the minimum cost, when considering the cost of lost sales resulting from running out of stock, the number of units sold per day, and the number of days required to receive inventory Also known as the reorder point