Intro to Bus Unit 2

All of the following are drawbacks of general partnerships EXCEPT 1. lack of continuity. 2. unlimited liability. 3. inability to pool financial resources. 4. potential for disagreements among owners.

inability to pool financial resources

A key advantage of a sole proprietorship is that _____

it is easy and inexpensive to form this type of business.

Which of the following is an actual competitive disadvantage for many small businesses?

lack of business knowledge and expertise by the owner

Most entrepreneurs have little trouble finding adequate financing during their start-up year, because the small size of their new firms means that financial needs are minimal. (true/false)

False

One advantage of opening a franchise rather than starting a business from scratch is that start-up costs tend to be lower. (true/false)

False

As an artificial person, a(n) _____ can legally engage in almost any business activity a natural person can, including owning property, entering into binding contracts, and initiate legal actions.

Corporation

Not all corporations are large. In recent years, about 24 percent of corporations have reported less than _____ in total sales revenue.

$25,000

Sole proprietorships make up over _____ of all businesses.

70%

What is a horizontal merger and what is its objective?

A combination of firms in the same industry. Common objective is to increase size and market power within the industry. Improve efficiency by eliminating duplication of facilities and personnel. ex: us airways merges with american airlines in 2013

What is conglomerate merger and its objective?

A combination of firms in unrelated industries. The common objective is to reduce risk by making the firm less vulnerable to adverse conditions in any single market. Ex: Berkshire Hathaway and 3G Capital buy Heinz for $23 billion.

What is vertical merger and what is its objective?

A combination of firms that are at different stages in the production of a good or service, creating a "buyer - seller" relationship. Common objective is to provide tighter integration of production and increased control over the supply of crucial inputs. Ex: Microsoft acquires Nokia for 7.2 billion.

market niche

A small segment of a market with fewer competitors than the market as a whole. Market niches tend to be quite attractive to small firms.

Describe the characteristics of the four basic forms of business ownership

A sole proprietorship is a business usually owned and managed by a single person. A partnership is a voluntary arrangement under which two or more people act as co-owners of a business for profit. A corporation is a legal entity created by filing a document "articles of incorporation with a state agency. A corporation is separate and distinct from its owners, who have limited liability for the debts of the company. A limited liability company (LLC) is relatively new form of business ownership that offers limited liability to all of its owners. However, LLCs offer more flexibility in tax treatment and have simpler operating requirements.

_____ are people willing to take the risk of starting, owning, and operating a business.

Entrepreneurs

evaluate the advantages and disadvantages of franchising.

Advantages to the franchisor is that they gain revenue without the need to invest its own money. The franchisee gains the right to use well-known brand names and proven business methods, and often receives training and support from the franchisor. Disadvantages: Franchisors find that dealing with a large number of franchisees can be complex and challenging. Main drawbacks for franchisees are the monetary fees (franchise fees and royalty) they must pay the franchisor and the loss of control over management of their business.

Discuss the advantages and Disadvantages of a sole proprietorship

Advantages: A sole proprietorship is the easiest and least expensive form of ownership to establish. It offers the single owner the flexibility of running the business without having to seek the approval of other owners. If business is successful, the sole proprietor keeps all profit. The earnings are taxed only as income of the owner with no separate business tax. Disadvantages: owner has unlimited liability for the debts of the business. They also have to work long hours and assume heavy responsibilities. May have trouble raising capital for expansion. Sole proprietorships have a limited life span. If owner dies, company dies.

Explain the pros and cons of the partnership as a form of business ownership

Advantages: Pooled financial resources and the benefits of shared workload can take advantage of complimentary skills. The earnings are taxed only as income to the partners; there is no separate income tax on the business itself. Disadvantages: Each owner has unlimited liability for the debts of the business. Partners can disagree on things pertaining to the business obstructing the ability to make business decisions. The death or withdrawal of a partner can cause business instability and uncertainty in managing and financing the company.

limited liability partnership

All partners may manage their company and are protected by some degree of limited liability for the debts of their firm.

institutional investor

An organization that pools contributions from investors, clients, or depositors and uses these funds to buy stocks and other securities.

Which of the following is NOT a significant drawback of getting into business by entering into a franchise arrangement? 1.The owner must pay an ongoing royalty to the franchiser. 2. A franchisee has less independence and flexibility than the owner of a business that is started from scratch. 3. The initial cost of most well-known franchises can be quite expensive. 4. Franchising is generally considered to be the riskiest option for starting a business.

Franchising is generally considered to be the riskiest option for starting a business

What are the threats for small businesses

High Risk of Failure: Starting a new business involves a lot of risks, but odds improve after 5 years Lack of knowledge and experience: Entrepreneurs often have expertise in particular areas, but lack the background to run successful business Too Little Money: Lack of start-up money since ongoing profits don't usually begin for months or even years. Bigger regulatory burden: Small firms spend 45 percent more per employee than big firms, simply complying with federal regulations. Higher health insurance costs: small-scale health plans are much more expensive, making it harder to offer employees competitive salaries.

what are the disadvantages of forming a corporation?

It's very complex and more expensive than forming a partnership. Profits that are distributed to stockholders are taxed twice - once as income to the corporation, then again as income to the stockholders. Corporations are also subject to extensive government regulation.

Which is NOT an accurate statement about a sole proprietorship? 1.Legally, the business is considered separate and distinct from its owner. 2. Sole proprietorships are the most common form of business ownership. 3. A sole proprietorship is easy and inexpensive to form. 4. Most sole proprietorships are small businesses.

Legally, the business is considered separate and distinct from its owner.

Explain why limited liability companies are becoming increasingly popular form of business ownership

Limited Liability Companies (LLC) are attractive because they avoid the problem of double taxation like C Corps, while giving all owners the protection of limited liability. LLCs are similar to S corporations, but without the restrictions on ownership. LLCs also face fewer regulations than corporations and give owners the flexibility to either manage the company themselves or hire professional managers.

A _____ maintains limited liability but offers more flexibility in terms of tax treatment than other forms of business ownership.

Limited Liability Company (LLC)

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

Limited liability partnership, LLP

_____are small segments within a market that can offer profit potential to entrepreneurs who know how to serve them.

Market niches

What are the opportunities for small businesses

Market niches: many small firms uniquely positioned to exploit small, but profitable market niches. Personal customer service: With a smaller customer base, small firms can develop much more personal relationships with individual customers. Lower overhead costs: Many small firms can hold down overhead costs by hiring fewer managers and fewer specialized employees. Technology: The Web has played a powerful role in opening new opportunities for small business in both local and global markets

venture capital firms

companies that invest in start-up businesses with high growth potential in exchange for a share of ownership

limited partnership

Partnership in which at least one of the partners has limited liability, but may not actively manage the partnership.

general partnership

Partnership in which each co-owner takes an active role in management.

What are funding options for small businesses?

Personal resources (personal accounts, credit cards, friends, family); bank loans, angel investors and venture capital firms.

Explain the size, scope, and economic contributions of small business

Small businesses play a vital role in the American economy, generating about half of the US GDP and accounting for 65% of all new jobs over the past 17 years. In addition to fueling employment growth, small businesses contribute innovations to the economy at a much higher rate than the big businesses. They also form the backbone of many inner-city economies, finding opportunities and offering products and services in places where most big firms don't operate.

Explain the key reasons to launch a small business

The advantage of business ownership can outweigh the risk and hard work. Most people are looking for some combination of greater financial success, independence, flexibility, and challenge. But some are seeking survival and simply have no other options

corporate bylaws

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

Explain why corporations have become the dominant form of business ownership

The most common form of corporation is the C corporation. All stockholders have limited liability for company debts. C Corporations can raise financial capital by issuing bonds or shares of stock, giving them an advantage when it comes to financing growth. They also have unlimited life, easy transfer of ownership and the ability to take advantage of professional management.

Discuss ways to become a new business owner and tools to facilitate success

There are many ways people who are interested in starting their own business can accomplish that goal. Some prefer to start their business from scratch and build company from the ground up, but some may choose to buy an established business or start a franchise. Tools you could use to facilitate success are: learning from others, educating yourself, access SBA resources and other local business support agencies like SCORE, and developing a business plan.

Describe the typical entrepreneurial mindset and characteristics

They aim to dominate their industry and their personality typically include some combination of the following characteristics: vision, self-reliance, energy, confidence, tolerance of uncertainty, and tolerance of failure.

external locus of control

a deep-seated sense that forces other than the individual are responsible for what happens in his/her life

internal locus of control

a deep-seated sense that the individual is personally responsible for what happens in his/her life.

what is a franchise?

a licensing agreement under which one party (franchisor) allows another party (franchisee) to use their name/products/business method etc.

Stockholders are _____ of a corporation. They have the right to vote on issues affecting the operation of the business.

owners

A venture capitalist firm is most likely to be interested in investing in a

small new company with the potential for rapid growth

All of the following are duties of a company's board of directors EXCEPT 1. establish the corporation's mission. 2. take an active role in the daily operations. 3. set the level of compensation for corporate officers. 4. develop broad corporate objectives.

take an active role in the daily operations

Angel investors are wealthy individuals who provide financing to promising new start-up companies. (true/false)

true

Entrepreneurs tend to be tolerant of

uncertainty; they view business uncertainty as something they can turn to their advantage.

In 2010, the overall U.S. entrepreneurship rates reached their highest level in 15 years. The rate increase is partially driven by

unemployed workers looking to stay afloat as the look for new jobs