Week 5 - Business Ownership

This one feature of an LLP could be considered both an advantage and/or a disadvantage:

A partner can make a decision affecting the entire business without consulting the other partners.

Some of the major advantages of incorporating your business are:

Limiting your personal liability, raising capital through the sale of stock, and alleviating disagreements among partners.

Anthony is starting a business and he is thinking about the costs associated with getting his business established because he does not have a lot of money to spend. Which form of ownership would cost Anthony the least to set up and why?

Sole proprietorship because he would not have to hire a corporate attorney to draft corporate charters, agreements, and articles of incorporation.

The disadvantages of partnerships include:

the need to share decision making across the partners.

Your friend Jody comes to you asking for advice. She owns a moving company called "Whatever Moves You, LLC" (they have cute musical notes in logo—very clever). She has owned the business for 45 years and has seen tremendous growth. Jody would like to transfer ownership of her business to her 30 year old daughter so that she may retire. What do you tell Jody?

"You will need to work with an attorney to see if this is even possible because rules about transferability of LLC's vary by state."

Caitlin is invited to join a business as a partner due to her expertise in the field. She is asked to sign a partnership agreement that gives her 40% of the profits, full control of the marketing activities only, but final say on all other decisions goes to the original owner. She is joining:

A limited partnership.

ABC Corporation is the second-largest company in a competitive market with three other major players. ABC wants to expand their market share quickly and become the leader in their space. One of the options their board considers is to purchase the property, plants, and equipment of the fourth-largest company, XYZ Inc. This action would be classified as a/an:

Acquisition.

A ________ seeks to provide a return to shareholders while pursuing other goals that benefit community or society.

B corporation

Which of the following entities can pursue a broader mission that may sometimes be at odds with maximizing profits for shareholders:

B corporation.

When starting a business, why is it important to understand and consider tax implications?

Different forms of business ownership result in businesses and owners being taxed differently. It is important to understand these differences in order to choose the scenario that best fits your needs.

Cost of start up, control vs.responsibility, profits, taxation, entrepreneurial ability, risk tolerance, financing and continuity or transferability are each:

Factors to consider when choosing an organizational type.

For a/the ________, the/an ________ is an alternative to expanding through the establishment of a new location, which avoids the financial investment and liability of a chain of stores.

Franchisor, franchise

Warren is starting a business. His biggest concerns are losing everything he owns if something goes wrong and being mired in strict taxation and administrative regulations. For those reasons, he decides to start a(n):

LLC.

This business legal structure can be defined as having single taxation, limited liability, and the flexibility to let each individual in the business decide how much responsibility and participation they want. This is a(n):

LLP.

These are the primary disadvantages for the Franchisor in a franchise business model.

Lack of control, vulnerability of trade secrets, and overexposure of the brand.

A business in which some or all partners have limited liabilities is called a:

Limited Liability Partnership

What is the most important question a business owner needs to ask themselves if they are considering their business continuity or transferability in the future?

How can I set up my business to either continue on without me or be sold?

The following are all advantages of business partnerships EXCEPT:

Partnerships shield the individual partners from debt and liability.

A franchisee is generally expected to pay:

royalty fees for support from the franchiser.

What is the purpose of a B Corp and what are the general requirements for operation?

Make a commitment to creating general public benefit; prepare an annual benefit report, pay an annual fee and adopt a third-party standard.

The two major drawbacks of an LLC legal structure are:

Potential limited life span and self-employment tax.

The advantages of being a franchisee are:

Risk reduction, relative autonomy, and brand recognition.

You are forming a new company that delivers food to students across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation. You want to pay each of the partners based on the percentage of the company that they own. You could accomplish this by forming a(n):

S corporation.

What are the most important factors to consider when choosing an organizational type for your business?

Start-up costs, taxation, and control.

The most significant differences between C and S corporations have to do with:

Taxation, administration, and shareholder compensation.

The main thing that makes S Corporations different from C Corporations is:

That the business is not taxed itself. Only the shareholders are taxed.

Aamer is preparing to interview for a job opening he saw on an employment board. He does a little research and discovers that the business is run by three individuals. How could he tell if the business is a sole proprietorship with two employees or a partnership of three persons?

The distinction would be if the three persons share legal ownership.

Which of the following is a downside of choosing a business structure where the owner has full control?

The owner has full responsibility and liability for the business.

Unlike many types of businesses, ________ are not recognized as legal business structures in every state. Some states even limit the creation of these to professionals such as doctors or lawyers.

limited liability partnerships

When two companies combine to form a new company it is called a(n):

merger

Corporations whose stock can be sold to the general public are, by definition:

public corporations

Which of the below would illustrate the advantages of vertical mergers and acquisition?

A media company merging with a cable company.

Define the business structure commonly known as a "sole proprietorship."

An unincorporated business owned and run by one individual in which there is no distinction between the business and the owner.

What is the biggest benefit to businesses of horizontal mergers and acquisitions?

Competition is reduced

Four friends are discussing franchises as a form of business, but have different opinions about how they are defined. Who is correct?

Daniel believes that franchises are businesses where the Franchisor licenses a business model, trademarks and methods to independent entrepreneurs (Franchisees) who own and operate the individual units.

The following business integration illustrates the definition of a "merger":

Exxon and Mobil.

What makes an LLC different from a C Corporation?

LLCs and C Corporations are taxed differently.

What would be the advantages of choosing a sole proprietorship over other legal structures of business?

The sole proprietorship would be cheaper to set up, the owner would have full control, the owner would be taxed as an individual, and the owner keeps all of the profits.

Why would a company choose to engage in a vertical merger or acquisition?

To increase synergies by merging firms that would be more efficient operating as one.

Why would a company undertake a horizontal merger or acquisition?

To take advantage of synergies and potential market share gains.

A thirty-five-year old entrepreneur with dependents is considering starting a business. She is concerned about protecting her personal assets and making sure that if her company were to fail, she would not lose her home or personal savings. This is an example of an individual:

With low risk tolerance.

A partnership is:

a single business in which two or more people share ownership.

Disney and Pixar coming together was a "match made in cartoon heaven" some say. This undertaking enabled the two companies to collaborate freely and easily resulting in some of the highest grossing animated films of all time. This is a successful example of:

acquisition.

In 2014 Microsoft purchased the popular game Minecraft for $2.5B. This is an example of a(n):

acquisition.

In 2016, Microsoft announced that it would buy LinkedIn for $26.2 billion, in an all cash deal, making it the 6th largest deal if its kind on record. This is an example of:

an acquisition

Once a franchise is established with multiple locations, the company may be able to take advantage of economies of scale with suppliers, advertisers and vendors. This is an example of:

an advantage for the franchisor.

A general partnership:

assumes profit, liability and management duties are divided equally among partners.

Which of the following entities are subject to limited liability?

corporations

A ________ is owned by a single individual who is responsible for all decisions and liabilities.

sole proprietorship

Smart Phone Inc. manufactures its custom phone cases for its awesome phones and tablets. It also manufactures its custom touch screen sensors and owns its own shipping company that delivers its phones and tablets straight to customer homes. Smart Phone Inc. is great at:

vertical acquisitions