Management 302 9-10

Federal Trade Commission

(WW) 1914 , A government agency established in 1914 to prevent unfair business practices and help maintain a competitive economy, support antitrust suits.

Name the 10 Sources of equity financing?

1. Boosttrapping via personal funds, 2. family and friends 3. Partners, 4. Venture Capital firms, 5. Small Business Investment Companies, 6. Angels 7. Mergers and Acquisitions (M & A) 8. Stock offerings, 9. Private Placements, 10. Public Offerings. Chapter 9 pgs. 246-248

Name the laws and regulations that affect small businesses.

1. Licenses and permits 2. Paying overtime 3. Job Protected leave 4. Minimum wage 5. Health insurance 6. Worker's compensation 7. Workers safety 8. Paying taxes 9. Employee Classification 10. Nondiscrimination Employment reporting 11. Environmental Protection 12. Sales tax 13. Antitrust laws 14. Trust in Advertising. START CHAPTER 10

Define initial capital requirements. How can you determine these?

1. list the assets required for your business to operate effectively 2. determine the market value or cost of each asset 3. identify how much capital you are able to provide 4. subtract the total of the owner provided funds from the total of the assets and expenses required. This figure represents the minimum amount of financing required.

Patent

A form of protection for intellectual property provided to an inventor for a period of 17 years. You have to file for a patent through the U.S Patent Trademark office (PTO) . With a patent application you must pay both filings fees and maintenance fees. Three maintenance fees must be paid 4,8, and 12 years or the patent will expire before 17 years.

Copyright

A form of protection for intellectual property provided to the creator of a literary, musical, or artistic work or a period of the creators life plus 50 years. You dont have to register your work for copyright but if you do it protects you more.

Trademarks

A form of protection for intellectual property provided to the owner of a brand name or symbol. Is a registered and protected brand. All trademarks are brands, but not all brands are trademarks. Trademarks are protected as long as you used them compare to copyright that are only good for a certain time. The are more than one million trademarks in the USA.

Buy sell agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

Angel

A lender usually a successful entrepreneur who loans money to help new business. There are more than 250,000 investors in the USA. A typical investment ranges from 20,000 to 50000. Types of angels, A. Corporate angel senior management, b. Entrepreneurial angles own and operate their own business, c. Professional angels, include doctors, lawyers, accountants, and other professionals, d. Micromanagement angels, investors.

Determine the financing need of your business. (Summary chapter 9)

A straight forward process for determining financing need is to 1. List the assets required for your business to operate effectively and the needed expenses 2. Determine the market value or cost of each asset 3. identify how much capital you are able to provide 4. subtract the total of the owner provided funds from the total of the assets and expenses required. This figure represents the minimum amount of financing required.

Non profit corporation

A tax exempt corporation that exists for a purpose other than making a profit.

Chapter 11 Bankruptcy (Reorganization)

A type of bankruptcy that allows businesses to reorganize their financial affairs and still remain in business. This type of Bankruptcy can be voluntary or involuntary. You must file a reorganization plan with the bankruptcy court. Only 3% of bankruptcy filings take place under chapter 11. They plan works with creditors they can not foreclose debts. They reorganize your debts for the future if this is not possible they will liquidate chapter 7 instead. The repayment plan is submitted to a bankruptcy judge, who must approve the conditions of the plan.

trade credit

A type of short-term financing extended by a seller who does not require immediate payment after delivery of merchandise for 30 days.

S corporation

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships. A special type of corporation in which the owners are taxed as partners. They are not double tax like corporations. Profits area taxed to shareholders at their individual income tax rate. There can be more than 75 shareholders.

breach of contract

A violation of one or more terms of a contract by a party involved in the contract.

article of partnership

A written agreement that sets forth each partner's rights and obligations with respect to the partnership.

Form 2553

An S corporation election is made by filing Form 2553 with the Internal Revenue Service (IRS). Forming a corporation.

contract

An agreement between two or more parties that is enforceable in court. Contracts do not have to be in writing but if they involve one of these they have to be in writing: Sale of real estate, Paying someone's else's debt, More than one year to perform, Sale of good valued at $500 or more.

line of credit

An agreement that makes a specific amount of short term funding available to a business as it is needed. You only pay interest on what you borrowed and the money is there to borrowed when you need it. Alternatives funding sources like Ondeck.com, kabbage.com, lendingclub.com write small business lines of credit.

principal

An amount of money borrowed from a lender.

Installment loans

Are made for the purchase of fixed assets equipment and real estate. a. includes interest and principal, principal loan will range from 65% to 80% of the assets market. b. the loan will equal the usable life of the asset. c. 15 to 30 years the loan d. 75% to 85% the bank will lend of the properties value. The bank will maintain a lines or security interest till the end of the loan.

Corporation Disadvantages

Expensive to start Complex to maintain Double taxation The smallest corporation must file articles of incorporation if they don't do this they will not have liability.

commercial finance companies

Extend short and intermediate term credit for firms that cannot easily obtain credit elsewhere. These companies are willing to take higher risks with business, they will usually charge a higher interest. Loans provided by commercial finance companies are floor planning, leasing, and factoring accounts receivable.

Describe the elements of a contract

For a contract to be legally binding it must have a legal purpose. Both parties must come to an agreement including a legitimate offer and a legitimate acceptance of that offer. Consideration or something of value, must be exchanged. finally all parties must have the capacity to enter into a binding contract meaning that they must not be underage intoxicated or of diminished metal ability.

Long-term loans

For purchasing land, machinery, and buildings or renovating facilities.

What can be patented?

Four tests A. Does the inventions fit a statutory class, B. Is the invention useful, C. Is it novel D. Is it nonobvious

What are the two types of partnerships?

General Partnership and limited Partnership

Paying taxes

IRS

Compounding Interest

Lenders may compound interest on semiannually, quarterly, monthly, weekly, daily or continuously. The more compounding periods the higher the rate will be.

Advantages of Equity Financing

Less risky: you don't have to pay it back Long term view: investors tend to look longer terms and expect their investment back immediately. Growth potential: Your profits can go back in to your business instead of paying back. Cash flow: you'll keep more cash in building your business.

Corporation Advantages

Limited liability increased access to resources transfer of ownership Are more trusted by banks than sole proprietorship and partnership.

How are liquidation and reorganization used as different approaches to Bankruptcy?

Liquidation After which the business ceases to exist. Reorganization which allows the business owner to file a plan with the court that offers protection from creditors until the debt is satisfied.

compensantory damages

Money awarded by the courts to a party of the contract who has suffered a loss due to the actions of another party.

The invention must fit one of the five statutory classes?

Must call it a machine, process, manufacturer, chemical composition or combination of those terms.

NFIB

National Federation of Independent Businesses

What kind of businesses would depend on floor planning?

New auotomobiles, trucks of loans, recreational vehicles, and boats.

License and permits

Only a few businesses required federal permits such as alcohol, firearms operating oversize vehicles or airplanes importing or exporting animals, plants, or animal products, and broadcasting via the airwaves.

Discuss how to protect intellectual property

Patents, copyrights and trademarks are legal ways to protect intellectual property. A patent grants an inventor the exclusive right to make use and sell an invention for a period of 17 years. A copyright provides legal protection against infringement of an authors literary musical, or artistic works. Copyrights usually last for the authors life plus 50 years. A trademark is a legally protected name, term symbol, design or combination of these elements used to identify products or companies. Trademarks last for as long as they are in use.

Dividends

Payment based on the net profits of the business and made to the providers of equity capital. Payments are made in quarterly, semiannual, or annual basis. Net profits are kept in the form of retained earning to keep the business growing and are paid in dividends only when buss shows profit.

Where is the first place where entrepreneurs find capital?

Personal assets

What are the most common sources equity financing ?

Personal funds, family and friends, partners, venture capital firms, small business investment companies (SBICs) angels, and various forms of stocks offerings. Beginning Chapter 9

General partnership advantages

Pooled talent Pooled resources Easy to form Tax benefits Access to additional capital compare to a sole proprietorship. Credit is easier to obtain banks see it as a less risk. Partnership like proprietorship have a tax advantage in that the owner pays their share in taxes only ounce. Partnership are easy to create.

Forming a corporation involves...

Preparing articles of incorporation(or a charter) and a set of bylaws. Choose a board of directors, adopt laws, elect officers, and issue stock. Choose if you want a C corporation, S corporation or a limited liability (LLC). You are not required to use an attorney.

Discuss the types of interests rates that may apply to a loan?

Prime rate: interest rate the bank charges their best customers with lowest risks. Prime Plus four:, higher interest rate the bank may offer. Effective rate of interest: Often higher and the borrower will need to keep a balance as 10% of the principal. Fixed rate loan: Same interest rate for the term of the loan. Fixed rate is higher. Variable rate loan: the interest rate may fluctuate over time. Variable interest is lower.

How do private placements differ and public offerings differ?

Private placement involves the sale of stock to a selected group. This stock can not be purchase by the general public. Less than 500,000 are subject to fewer gov regulations. Intrastate being sold to more than one state and Interstate being sold to one state. Public offerings stock being sold to the public. Commissions governed by Securities and Exchange Commissions regulations can be costly between 400,000 to 1 million 15% in legal fees, underwriting fees, audits, printing expenses, and other costs.

SBA Express Program

Promises quick processing for amounts less than $350,000 -can get you the answer QUICKLY

Intellectual property

Property that is created through the mental skills of a person. Includes slogans, symbols that describes your business or product. Patents, copyrights, trademarks.

504 loan

Provides small businesses with funding for fixed assets when conventional loans are not possible. Provides fixed-rate financing to acquire machinery, equipment, or real estate for expansion or modernization with a maximum SBA exposure limit of $1M. Maturity for financing, 10 years for equipment purchase and 20 years for real estate. It's 100% secured by SBA loan.

Short term loan

Purchasing inventory, overcoming cash flow problems, and meeting monthly expenditures. Types of short term loans to purchase inventory, lines of credit, demand notes, and floor planning.

The Bankruptcy Abuse Prevention and Consumer Protection Act

Requires comparison of the debtors income to the median income in the individuals home state. Chapter 7

Chapter 7 Bankruptcy (Liquidation)

Requires the debtor to liquidate (sale) nonexempt property to repay creditors. Proof of claim will be required by the creditors that there is no other alternative. Means fest for eligibility to fine under Chapter 7.

Small business investments companies (SBICs)

SBA funds them to invest on small businesses they provide equity financing to qualified entrepreneurs it was created in 1969.

What is the difference between a secured loan and an unsecured loan?

Secured loan the borrower will need a collateral. Unsecured loan the borrower does not need collateral.

Describe the three main forms of ownership?

Sole proprietorship, partnership, and corporation

What are the advantages of borrowing though the SBA?

a. low interest rate 2.25-2.75 b. 7 year loan term c. includes the 7(a) loan guaranty program, the microloan program, the small business Investment company program. c. the majority of theses programs go to service retail and manufacturing.

Joint venture

an agreement between two or more companies to share a business project. A partnership that is created to complete a specified purpose and is limited in duration.

Venture Capital Firms

are groups of individuals or companies that invest a significant amount of dollars in new or expanding firms. VC as they are called will make loans. High interest 20%, expect higher return 30 to 50 % and expect to have a sizeable ownership position in your business as their return investment. From the 600 venture capital firms in the USA 500 are private independent firms, 65 major corporations and the rest affiliated with banks. Average invested sum $1.5 million and 2 million per business. They invest on technology not in retail.

Short term assets

assets that will be converted into cash within one year

Loan security

assurance to a lender that a loan will be repaid.

Commercial Banks

depository institutions that historically make short-term loans primarily to businesses. They make loans to business with creditworthiness.

Limited partnership agreement

is required in most states. Identifies each partners potential liability and the amount of capital each partner supplies. Most partnerships are formed for real estate investments .

The effective rate of interest

it's the actual interest rate being paid. otherwise equivalent discount loan.

Antitrust laws

laws that prevent monopolies and promote competition and fairness. Sherman act

zoning laws

legal restrictions on land use that determine what types of building and economic activities are allowed to take place in certain areas. Variance you can apply to allowed you to operate without complying with the regulation or without having the regulations changed.

Name the four basic conditions or elements a contract must meet?

legality, agreement consideration, and capacity.

Short-term Loans

loans that have to be repaid within less than one year

Long-term loans

loans which will be in repayment for more than 10 years

Consideration

something of value exchanged for something else of value. Without a consideration the agreement is about a gift and not a contract. I Charge 600 and I will give you 200 of my product.

Workers compensation

state programs that provide benefits to workers who suffer work-related injuries or illnesses, or to their survivors. Its legally mandatory, injures receive , medical care, death benefits, lost income, vocational rehabilitation, you receive protection from lawsuits. There regulated by singe states.

Floor Planning

the retailer has possession of the collateral, but the lender has a specific lien against it. The retailer pays interest on the amount of the loan but the loan is not due until the car is sold. This loan is used for high priced inventory such as new automobiles, trucks, recreational vehicles, and boats. The business may display the inventory on premises but its owed by the bank till it gets sold.

leverage

the use of borrowed money to supplement existing funds for purposes of investment. The ability to finance an investment through borrowed funds, increasing both the potential risk for return and the level of risk.

Loan Restrictions

Sometimes called covenants what the borrower can not do or what they must do. Doing you homework and being prepared can improve your chances of successfully obtaining funds.

What licenses are required by the owner of a small business.

State tax license, Business license with the city, and some times Federal license. Food Health license .

Symbol TM and R

Symbol TM before you register your trademark and R after you register you trademark.

Nondiscrimination Employment reporting

The Equal Employment Opportunity Commissions requires businesses with more than 100 employees to report pay by race/ethnicity, job, category, and gender.

List and briefly explain the laws that protect people in the workplace.

The Family and Medical Leave Act allows employees to take up to 12 weeks of unpaid leave for maternity or paternity or sick leave for a family member. The Fair labor standards act set the minimum wage. Affordable Care Act health insurance. Fair labor standards act (FSLA) protects people from not being paid overtime. OSHA created in 1970 to protect employee safety and health.

Employee Classifications

The IRS classifies if employees are Independent or Contractors. You are not required to pay for Independent contractors.

List and explain the types of bankruptcy

The US bankruptcy Code is made up of nine chapters only three of which apply to most small business (chapter 11, 7 and 13) Chapter 7 uses liquidation , meaning that the business ceases to exist in an effort to provide the debtor with a fresh start. Liquidation involves selling all of the business assets and nonexempt personal assets and then distributing the proceeds among creditors. Chapter 11 and 13 allows the business owner to file a reorganization plan with the court that offers protection from creditors until the debt is satisfied.

Environmental Protection Agency (EPA)

The US federal agency with a mission to protect human health and the environment. Includes the Air Act, and the Clean Water Act.

Interest rate

The amount of money paid for the use of borrowed funds.

Long-term assets (fixed assets)

The assets with a lifespan of more than a year, such as land, buildings, equipment, and expensive technology. Will not be converted into cash within one year.

Secured Loan (Asset-Backed Loan)

The borrower guarantees repayment of the loan by pledging the asset as collateral to the lender.

Code of Federal Regulations (CFR)

The codified regulations of the Federal government based on the final agency regulations published in the Federal Register. Rules and regulations filled 178,277 pages.

Legality

The contract's purpose must be to accomplish some goal that is legal and not against public policy.

Job Protected Leave

The family and act leave allows maternity leave paternity for up to 12 weeks, but businesses with fewer than 50 employees are exempt.

Trust in advertising

The federal trade commission (FTC) assures all advertisements are honest and true.

Initial Public Offering (IPO)

The first sale of stock of a business made available to public investors. When the company offers its stock to the general public.

Initial public offering

The first sale of stock of a business made available to public investors. When the company offers its stock to the general public.

Articles of partnership (partnership agreement)

The formal contract agreement between principals or people forming a partnership. The purpose of this contract is to outline the partners obligations and responsibilities. a. the name and purpose of the partnership b. The contribution of each partner in cash, services, or property c. The authority of each partner and the need for consensual decision making. d. The management responsibilities of each partner e. The duration of the partnership f. the division of profits and losses g. the salaries and draws of partners h. the procedure for dispute settlement or arbitration i. the procedure for sale of partnership interest j. the procedure for addition of a new partner k. the procedure and conditions for dissolving the partnership.

Uniform Partnership Act (UPA)

The intent to settle problems between partners. Signed in 1917 and revised in 1994, covers most legal issues concerning partnerships and has been adopted by every state except Louisiana. The intent is to solve problems that arise between partners. pg 276

What tests must an invention pass to receive a patent?

The legal utility must be useful someway, Novel it must be different from all other things, Nonobvious the difference your invention and other developments.

maturity

The length of time in which a loan must be repaid. Short term, intermediate term loan, long term loan.

What do all businesses have in common?

They all have to follow all federal, state, and local laws and regulations, but small businesses face legal and regulatory standards that are different from the standards set for larger businesses.

Three types of patents?

Utility patents protect unique or new forms or shapes. Utility patent looks alone are different you need a design patent. Plant patent covers living plants, such as flowers trees, or vegetables.

Prime rate

Was defined as the interest banks would charge their best customers now bank also have the prime rate plus some additional points. ex. prime rate 8.5 prime rate plus 12.5. Factors such as default at risk and maturity affect the cost of the loan.

PTO examiner

Will review your application it can take months or years before the review begins. The examination process can take from one to three years.

Are the antitrust laws established in the late 1800s and early 1900s still pertinent in the 21st century? Why or why not?

Yes, its still pertinent in the 21st century because you can not decide mutually how much you will charge or where are you going to sell your products these would violate the antitrust laws.

intermediate long term

a loan that has to be paid from 1 to 10 yeas.

Minimum wage

a minimum price that an employer can pay a worker for an hour of labor. If the employer get tipped they may get paid a lower wage.

Chapter 13 Bankruptcy

a reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts over three to five years. Small business owners who owe less than 250000 in unsecured debt, and less than 750000 secured to pay back to creditors. 1/4 of bankruptcy are submitted under chapter 13.

closely held corporation

a type of corporation that issues stock to only a few people, who are often family members. A corporation that sell shares of stock to the public and is listed on a stock exchange.

partnership agreement

a written agreement among all owners detailing the rules and procedures that guide ownership and operations. Legally you can have a partnership without a written agreement but it's not recommended.

Paying overtime

A business greater than 500,000 are required to pay overtime to nonexempt employees who work more than 40 hours. Below the 500,000 you must still pay overtime if you engage in interstate commerce which includes phone calls, mail or products from another state.

Sole Proprietorship

A business owned by one person. There are no legal requirements. If your operating under another name you must register the business as a trade name with the state department of revenue.

limited partnership

A business structure in which one or more of the owners may be granted limited liability as long as one partner is designated as a general partner with unlimited liability.

Corporation

A business structure that creates an entity separate from its owners and managers. Its the most complicated business structure to form. A corporation is autonomous entity that has the legal right of a person, the ability to sue and be sued, to own property, to engage in business transactions. A corporation must act to the states laws.

What is the difference between a copyright and a trademark? Between a trademark and a brand?

A copyright only protects for 17 years and a trademark protects as long as you use it. A trademark is a registered brand. A brand is the name, term, symbol, design or combination but its not registered. All trademarks are brands, but not all brand are trademarks because some are not registered.

public corporation

A corporation that sells shares of stock to the public and listed on a stock exchange.

Injunction

A court order that prohibits certain activities. If the previous owner breaks the compete covenant which state the previous owner may not start or own a similar business in a specific geographic location. The judge may ask to the previous owner not to operate the business for the duration of the agreement.

articles of incorporation

A document describing the business that is filed with the state in which a business is formed.

Bankruptcy Reform Act of 1978

A federal act that substantially changed federal bankruptcy law. The act made it easier for debtors to file for bankruptcy and have their unpaid debts discharged. This act was considered debtor friendly. 3 chapters 7, 11 and 13. Bankruptcy accomplished 2 things liquidation after a business ceases to exits or reorganization which allows the business to file a plan with the court that offers protection from creditors until the debt is satisfied.

What does pledging accounts receivable mean?

A firm uses its accounts receivable as collateral, or security, to obtain a short-term loan

Policy loans on cash value insurance:

A loan made to a business by an insurance company using the business insurance policy as collateral. The insurance company may lend up to a 95% of a policy's cash surrender value. The collateral is the cash value the business has already paid in to the insurance. (Insurance Companies)

SBA loan program

A loan made to a small business through a commercial bank of which a portion is guaranteed by the small business administration. SBA loans include 7(a) loan guaranty program, the Microloan program, the Small Business Investment company program, the 504 loan program. The majority of these loans go to service, retail, and manufacturing. Interest rate 2.2 up to 2.75 in 7 years.

Unsecured term loans

A loan made to an established business that has demonstrated a strong overall credit profile.

Balloon rates

A loan that allowed the borrower to just covered the interest of the loan till the end of the loan and pay the balance of the loan at maturity.

unsecured loan

A loan that doesn't require any collateral. They often self liquidating. It will be paid directly from their revenues. Types of short term loans to purchase inventory, lines of credit, demand notes, and floor planning.

Variable rate loan

A loan whose interest rate changes over the life of the loan.

Fixed Rate Loan

A loan whose interest rate remains constant

agreement

A meeting of two or more minds in regard to the terms of a contract; usually broken down into two events—an offer by one party to form a contract, and an acceptance of the offer by the person to whom the offer is made. Oral contract is a legal binding contract .

compensating balance

A minimum average balance that a bank may require a borrower to leave on deposit in a non-interest-bearing account. It helps keep the same interest but reduces the chance of the borrower to have more money because the money that is being deposited.

capacity

A minor can not signed a contract or a person with a mental disability. The person has to have the capacity to legally signed a contract.

Brand

A name term symbol design or combination of theses elements that clearly identifies and differentiates your products from those of your competitors.

Certified Development Company (CDC) 504 Loan Program

A non profit organization sponsored either by private interests or by state or local governments. The funds are distributed through certified development.

Specific Performance (Remedy)

A non-monetary award granted by the courts who have suffered a loss due to the actions of another party. When money does not compensate for the damage, the judge may ask for the person who causes the damage to do exactly what they said they would do in the contract.

General Partnership

A partnership in which all owners share in operating the business and in assuming liability for the business's debts.

What do you do before filing a patent application?

A patent search to save money and time.

Limited Liability Company (LLC)

A relatively new type of corporation that taxes the owners as partners yet provides a more flexible structure than as S corporation. First recognized by ti IRS in 1988 offer limited liability protection of a corporation and tax advantages of a partnership without the restrictions of an S corporation. LLC is not constrained by the regulation of S and C corporations who can and can not participate in them, what they can or can not own or how profits and losses will be allocated to members. This is a good option if you prefer to be taxed as a partnership and not as a corporation.

C Corporation

A separate legal entity that reports its income and expenses on a corporate income tax return and is taxed on its profits at corporate income tax rates.

Demand note

A short term loan that must be repaid. Both principal and interest in one lump sum. The only reason why a bank my demand the loan to be paid is if they think the business is financially struggling.

Endorsers

Endorsers are liable for the notes they signed. Others signatures that appeared on the loan. Two types of endorsers Comakers and Guarantors

Equity funds Second place a business owner will look for funds?

At least 25%, Cash, savings accounts,and checking accounts are most obvious sources of equity funds. Additional sources sale of stocks, bonds, mutual funds, real estate, or other personal investments.

License, Restrictions and Permits

At the Federal level file a form 2553, state level professionals lawyers, dentists and architects, regional level several counties environmental regulations, local level to consult would include city or county clerk, city or county treasurer, zoning department, building department, health department, fire department, police department, public works department.

Of the approximately 500,000 companies that started in the year 2017 only 5052 received $72 billion in funding from venture capitalist. If just this small percentage actually received venture capital, why do small business magazines print such a disproportionately large number of articles about venture capital?

Because they only invest in high rate return businesses like Technology industries, growth industries, and essential businesses. END CHAPTER 9

health insurance

Businesses with fewer than 50 employees can purchase health insurance through the small business health options program (SHOP) Tax credits may be applied if you cover at least half of your employees premium costs and you have fewer than 25 employees.

What are the 5 C's of credit and how do lenders use it?

Capacity, capital, collateral, character and condition Lenders use to provide credit worthiness to potential providers of funds. pg. 231

Guarantors

Ensure the repayment of a note by signing a guarantee commitment. Both private and government lenders often require guarantee from officers of corporations to ensure continuity of effective management.

What chapters of bankruptcy law accomplish these objectives?

Chapter 7 and 11

Name the three type of corporations for businesses.

Closely held corporation, public corporation, C corporation

Disadvantages of debt financing

Deadlines: money must be paid back by a fixed date Cash Flow: too much debt will create cash flow issued which will make repayment difficult Investor potential: Too much debt will make you less attractive to investors. Collateral: Business will be hold as collateral

Forms of capital?

Debt and equity. Debt is borrowed from a bank and equity is from the funds you have. Debt creates leverage which is money you can borrow against the money you already have. Equity is money supplied by investors who may sometimes may want a position in the company.

What are the differences between debt funds and equity funds?

Debt fund are borrowed from a creditor and must be repaid. Equity funds an investor will invest in your business, in exchange for an ownership position in the business. They do not need to be repaid.

advantages of debt financing

Easier plan: Budgeting is easier since principal and interest are known Appropriate timing: Loans can be structured for short, medium, or long term Tax deductions: Interest paid is tax deductible Flexibility: Since they do not own your business they do not have a saying how to run your business.

Sole Proprietorship Advantages

Independence Easy to set up Easy to close Tax benefits

Patent trolls

Individuals or companies that hold patents for unscrupulous purposes such as stifling competition or launching patent infringements lawsuits. Companies known as nonpracticing entities. They have the patent but never used them, they make money buy suing potential patent infringers.

What rights does owning a patent protect? How do you get this protection?

It gives you the right ti exclude someone else or some other company from making using or selling the property you have created and patented for a period of 17 years. You can hire an attorney or use a PTO who help individuals who do not use an attorney.

How does the Federal Trade Commission protect consumers?

It protects consumers by enforcing contracts, protecting property, rights of consumers.

Comakers

Join liability with the owner of the loan. Two people who signed the loan, the bank can collect from both the original borrower on the Comaker.

Name the laws and regulations that affect small business. (Summary chapter 10)

The maze of federal state and local news is a confusing place for small businesses. Specific laws that owners of small businesses should know include the Fair Labor Standards Act, Family and Medical Leave Act, Affordable Care Act, Equal Employment Opportunity Act, Clean Air and Water Acts, Sherman Act, and Occupational Safety and Health Act.

What do articles of incorporation include.

The name of the company, the purpose of your corporation, the names and addresses of the incorporators, the names and addresses of the corporations home office, the amount of capital required at time of incorporation, capital stock to be authorized, bylaws of the corporation , lenght of time the corporation will operate.

unlimited liability

The owner is personally and fully responsible for all losses and debts of the business

factoring receivables

The practice of raising funds for a business through the sale of accounts receivables. Sells their receivables to a finance company or uses them as collateral for a loan.

The pro forma balance sheet is used in the critical risk segment of the business plan.

The pro forma balance sheet estimates the amount of funds needed. the amount you need to borrow is the difference between the total of pro forma assets and total owners equity.

Equity financing

The sale of common stock or the use of retained earnings to provide long- term financing. Equity does not have to be repaid. There are no payments to constrains the cash flow of the business. No interest on the funds. Providers end up owning a part of the business: a. getting dividends b. they benefit from the increase of the business c. having a voice on the management.

Explain where to look for sources of funding.

The search for capital and the application process can be unsettling as you sort through the various sources of funds. Major sources of debt financing include commercial banks, finance companies, government lenders, and insurance companies. Sources of equity include personal funding sources, partners, venture capital firms, angels, and stock offerings. Finding capital is one of the most important tasks you face in starting and managing a business. A thorough understanding of the issues involved will enhance your chances of finding the best source for your business.

debt financing

The used of borrowed funds to finance a business

Sales tax

There's no federal tax unless you sell online, you do need to collect sales tax in which your business has some physical presence .

Define basic financing terminology

To procure financing, you must understand the basic financial vocabulary. Each major form of capital (debt and equity) has unique terminology that defines the details underlying financing agreements. Each form of capital has pros and cons that make it more or less desirable to the entrepreneur under given circumstances.

Disadvantages of equity financing

Total cost: Giving up a percentage of ownership may cost more than paying interest Less control: giving up a percentage means you will have to ask for permission on decision making to the investors. Irreconcilable differences: If one of your investors don't agree on of you will have to bought out of business. Time and effort: Finding the right investor is not easy and you have to maintained a long relationship.

loan security and loan restrictions

Two additional terms that you will often encounter while searching for financing.

Sole proprietorship disadvantages

Unlimited liability limited resources limited skills lack of continuity

General partnership disadvantages

Unlimited liability Potential for management conflict Less independence that proprietorship Continuity or transfer of ownership In partnership you can be liable of your partners actions. Even if the agreement says they share half the profits they are still 100% liable.