Intro to Business Chapter 5

What is the difference between a limited partner and a general partner?

General partners are owners (partners) who have unlimited liability and are active in managing the company. Limited partners are owners (partners) who have limited liability and are not active in the company.

What are some of the advantages and disadvantages of partnerships?

The advantages include more financial resources, shared management and pooled knowledge, and longer survival. The disadvantages include unlimited liability, division of profits, disagreements among partners, and difficulty of termination.

conglomerate merger

The joining of firms in completely unrelated industries.

leveraged buyout (LBO)

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing.

general partner

An owner (partner) who has unlimited liability and is active in managing the firm.

What is the role of owners (stockholders) in the corporate hierarchy?

Stockholders do not have to be employees of the corporation. They are investors who have limited liability. Stockholders elect the board of directors of a company who select the management to control the company.

partnership

A legal form of business with two or more owners.

franchise agreement

An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.

horizontal merger

The joining of two firms in the same industry.

limited liability

The responsibility of a business's owners for losses only up to the amount they invest; limited partners and shareholders (stockholders) have limited liability.

unlimited liability

The responsibility of business owners for all of the debts of the business.

What opportunities are available for starting a global franchise?

Successful franchising in global markets offers the same opportunities as in domestic markets. However, franchisers must be careful to adapt to the region where they wish to expand. McDonald's, for example, has more than 33,000 restaurants in 119 countries.

vertical merger

The joining of two companies involved in different stages of related business.

merger

The result of two firms forming one company.

franchise

The right to use a specific business's name and sell its products or services in a given territory.

limited partner

An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment.

sole proprietorship

A business that is owned, and usually managed, by one person.

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.

cooperative

A business owned and controlled by the people who use it--producers, consumers, or workers with similar needs who pool their resources for a mutual gain.

limited liability company (LLC)

A company similar to an S corporation but without the special eligibility requirements.

franchiser

A company that develops a product concept and sells others the rights to make and sell the products.

corporation

A legal entity with authority to act and have liability apart from its 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 (LLP)

A partnership that limits partners' risk of losing their personal assets to only they own acts and omissions and to the acts and omissions of people under their supervision.

conventional (C) corporation

A state-chartered legal entity with authority to act and have liability separate from its owners.

S corporation

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships.

What are the major advantages and disadvantages of incorporating a business?

Advantages of incorporating a business include: Limited liability, ability to raise more money for investment, size, perpetual life, ease of ownership change, ease of attracting talented employees, separation of ownership from management. Disadvantages of incorporating are: Initial cost, extensive paperwork, double taxation, two tax returns, size, difficulty to terminate, possible conflict with stockholders and board of directors.

What are some of the factors to consider before buying a franchise?

Before buying a franchise be sure to check a company's resources, financial strength, and reputation. There are many franchising scams. Consider things like: 1) Under what circumstances can you terminate the franchise contract and at what cost to you? 2) How many years has the firm offering you a franchise been in operation? 3) Will the firm help you find a good location for your new business?

What is cooperative?

Cooperative is a business owned and controlled by the people who use it--producers, consumers, or workers with similar needs who pool their resources for a mutual gain.

Why would unlimited liability be considered a major drawback to sole proprietorships?

It's considered a major drawback because unlimited liability means that sole proprietors must pay all debts and damages caused by their business. They may have to sell their houses, cars, or other personal possessions to pay business debts.

Why are so many new businesses choosing a limited liability company (LLC) form of ownership?

Limited liability companies have the advantage of limited liability without the hassles of forming a corporation or the limitations imposed by S corporations. LLCs may choose whether to be taxed as partnerships or corporations.

acquisition

One company's purchase of the property and obligations of another company.

If you buy stock in a corporation and someone gets injured by one of the corporation's products, can you be sued? Why or why not?

Stockholders in a corporation have limited liability meaning as owners they are responsible for its losses only up to the amount they invested. The corporation could be sued and forced out-of-business but the stockholder would only lose what he/she invested.

franchisee

A person who buys a franchise.

Most people who start businesses in the United States are sole proprietors. What are the advantages and disadvantages of sole proprietorships?

The advantages of sole proprietorships include ease of starting and ending, ability to be your own boss, pride of ownership, retention of profit, and no special taxes. The disadvantages include unlimited liability, limited financial resources, difficulty in management, overwhelming time commitment, few fringe benefits, limited growth, and limited life span.