Business CH 5
Sole Proprietorship
A business owned, and usually managed by one person
Acquisition
One company's purchase of the property and obligations of another company.
unlimited liability
the responsibility of business owners for all of the debts of the business
Merger
the result of two firms forming one company
Disadvantages of Corporations
1. Initial cost 2. Extensive paperwork 3. Double taxation 4. Two tax returns 5. Size 6. Difficulty of termination 7. Possible conflict with stockholders and board of directors
Disadvantages of Franchises
1. Large start-up costs 2. Shared profit 3. Management regulation 4. Coattail effects 5. Restrictions on selling 6. Fraudulent franchisors
Advantages of LLC's
1. Limited liability 2. Choice of taxation 3. Flexible ownership rules 4. Flexible distribution of profits and losses 5. Operating flexibility
Advantages of Franchises
1. Management and marketing assistance 2. Personal ownership 3. Nationally recognized name 4. Financial advice and assistance 5. Lower failure rate
Advantages of Partnerships
1. More financial resources 2. Shared management and pooled/complementary skills and knowledge 3. Longer survival 4. No special taxes
Disadvantages of LLC's
1. No stock 2. Limited life span 3. Fewer incentives 4. Taxes 5. Paperwork
Disadvantages of Partnerships
1. Unlimited liability 2. Division of profits 3. Disagreements among partners 4. Difficulty of termination
Corporation
A legal entity with authority to act and have liability separate from its owners
Partnership
A legal form of business with two or more owners
General Partnership
A partnership in which all owners share in operating the business and in assuming liability for the business's debts
Limited liability partnership (L L P)
A partnership that limits partners' risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision
Master limited partnership (M L P)
A partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax
Limited Partnership
A partnership with one or more general partners and one or more limited partners
Conventional (C) Corporation
A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders)
S Corporations
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships. •Have shareholders, directors, and employees, plus the benefit of limited liability. •Shareholders pay tax
Franchise agreement
An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory
Leveraged buyout (LBO)
An attempt by employees, management, or a group of private investors to buy out the stockholders in a company.
General Partner
An owner (partner) who has unlimited liability and is active in managing the firm
Limited Partner
An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment
Home-based Franchises Disadvantages
Isolation Long hours
Limited Liability Companies
L L Cs are similar to an S corporation but without the special eligibility requirements.
Home-based Franchises Advantages
Relief from commuting stress Extra family time Low overhead expenses
Conglomerate Merger
The joining of firms in completely unrelated industries.
Vertical Merger
The joining of two companies involved in different stages of related businesses
Horizontal Merger
The joining of two firms in the same industry
Why would unlimited liability be considered a major drawback to sole proprietorships?
With unlimited liability, the sole proprietor is liable for all debts and obligations of the business and must pay them even if it means selling your home, car, or whatever else you own.
Cooperative
a form of business that is owned and controlled by the people who use it—producers, consumers, or workers with similar needs who pool their resources for mutual gain. (farmers)
Advantages of Sole Proprietorship
ease of formation, retention of control, pride of ownership, retention of profits, no special taxes
Advantages of Corporations
limited liability, ease of raising more money, ease of transfer of ownership, perpetual life, specialized management
Disadvantages of Sole Proprietorship
unlimited liability, lack of continuity, lack of money, limited management skills, difficulty in hiring employees
