Chapter 5
Minorities
Who owns less than 19% of businesses, yet over 30% of franchises?
Cooperative (Co-Op)
A business owned and controlled by the people who use it -- producers, consumers, or workers with similar needs who pool their resources for mutual gain Serve one billion member worldwide
sole proprietorship
A business owned, and usually managed, by one person.
horizontal merger
The joining of two firms in the same industry
unlimited liability
the responsibility of business owners for all debts of the business
1. Isolation 2. Long hours
Disadvantages of home based franchises
general partnership
A partnership in which all owners share in operating the business and in assuming liability for the business's debts.
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.
Limited liability partnership (LLP)
A partnership that limits partners' risk of losing their personal assets to only their own acts and omissions and the the acts and omissions of people under their supervision
Master limited partnership (MLP)
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) Enables many people to share in ownership.
S Corporations
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships. They have shareholders, directors, and employees, plus the benefit of limited liability. Profits are taxed only as the personal income of the shareholders.
1. Limited liability 2. Ability to raise money for investment 3. Size 4. Perpetual life 5. Ease of ownership change 6. Ease of attracting talented employees 7. Separation of ownership from management
Advantages of Corporations
1. Limited liability 2. Choice of taxation 3. Flexible ownership rules 4. Flexible distribution of profits and losses 5. Operating flexibility
Advantages of LLCs
1. More financial resources. 2. Shared management and pooled/complementary skills and knowledge. 3. Longer survival. 4. No special taxes.
Advantages of Partnerships
1. Management and marketing assistance 2. Personal ownership 3. Nationally recognized name 4. Financial advice and assistance 5. Lower failure rate
Advantages of franchises
1. Relief from commuting stress 2. Extra family time 3. Low overhead expenses
Advantages of home based franchises
20%, 81%, Sole proprietorships, 6%
Although corporations make up only _______ of the total number of businesses, they earn _________ of the total receipts. ________________ are the most common form (72%), but they earn only ___________ of the receipts.
franchise agreement
An arrangement whereby someone with a good idea for a business (franchiser) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. Can be formed as a sole proprietorship, a partnership, or a corporation .
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.
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 Corporations
1. No stock; ownership is nontransferable 2. Fewer incentives 3. Taxes 4. Paperwork
Disadvantages of LLCs
1. Unlimited liability 2. Division of profits 3. Disagreements among partners 4. Difficulty of termination
Disadvantages of Partnerships
1. Large start-up costs 2. Shared profit 3. Management regulation 4. Coattail effects 5. Restrictions on selling 6. Fraudulent franchisers
Disadvantages of franchises
1. Unlimited liability. 2. Limited financial resources. 3. Mangement difficulties. 4. Overwhelming time commitment. 5. Few fringe benefits. 6. Limited growth. 7. Limited life span.
Disadvantages of sole proprietorships
extend their brands, and meet the needs of both customers and their franchisees
Franchisers use technology, including social media, to do what?
convenience and a predictable level of service and quality
Franchising in global markets offer the same advantages as in the U.S.: _____________.
5 years
If an S corporation loses its S status, it may not operate under it again for at least ___________.
limited liability, possible tax benefits
Major advantages for individuals who incorporate
that the new combined company does not limit competition unfairly
Mergers between competitors must prove to the Federal Trade Commission (FTC) what?
Acquisition
One company's purchase of the property and obligations of another company
-Have no more than 100 shareholders. -Have shareholders that are individuals or estates, and who (as individuals) are citizens or permanent residents of the U.S. -Have only one class of stock. -Derive no more than 25% of income from passive sources.
Qualifications for S Corporations
True
Stock is normally not issued to outsiders when individuals incorporate, so they do not share the advantages and disadvantages of large corporations. True or False
conglomerate merger
The joining of firms in completely unrelated industries
vertical merger
The joining of two companies in different stages of related businesses
limited liability
The responsibility of a business's owners for losses only up to the amount they invest; limited partners and shareholders have this
merger
The result of two firms forming one company
1. Ease of starting and ending the business. 2. Being your own boss. 3. Pride of ownership. 4. Leaving a legacy. 5. Retention of company profits. 6. No special taxes.
What are advantages of sole proprietorships?
Sole proprietorship, partnership, and corporation
What are the three major forms of business ownership?
general, limited
What are the two major types of partnerships?
general, limited
What are the two types of partners?
merger, acquisition
What are the types of expansion?
vertical, horizontal, conglomerate
What are the types of mergers?
Owners/stockholders, Board of Directors, Officers, Managers, Employees
What is the order of owners in a business?
Anyone (truckers, doctors, plumbers, athletes, and small business owners)
Who can incorporate?
women
Who owns about half of U.S. companies, yet ownership of franchises is about 35%?
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.
Why would unlimited liability be considered a major drawback to sole proprietorships?
Canada, China, South Africa, the Philippines, the Middle East
____________ is the most popular target for U.S. based franchises, but so is ______, _____, _____, and ______.
quasi-public corporations
are chartered by the government as an approved monopoly to perform services to the general public
professional corporations
are owned by those who offer professional services
foreign corporations
do business in one state but are chartered in another. About 1/3 of all corporations are chartered in Delaware because of its relatively attractive rules for incorporation. A foreign corporation must register in states where it operates.
alien corpoations
do business in the US but are chartered (incorporated) in another country
domestic corporations
do business in the state in which they are chartered (incorporated)
nonprofit (or not-for-profit) corporations
don't seek personal profit for their owners
closed (private) corporations
have stock that is held by a few people and isn't available to the general public
open (public) corporations
sell stock to the general public
Limited Liability Companies (LLC)
similar to an S corporation but without the special eligibility requirements