BUS 100 Ch.4 (Starting & Growing a Business)

Define and examine the advantages and disadvantages of the sole proprietorship form of organization

- Advantages: 1) easy & inexpensive to form 2) high level of secrecy 3) all profits belong to owner 4) owner has complete control of business 5) minimal gov. regulation 6) taxes only paid once 7) business can be closed easily - Disadvantages: 1) owner may have to use personal assets to borrow money 2) sources of external funds are hard to find 3) owner must have many diverse skills 4) survival of business is tied to life of owner and their ability to work 5) hard to find quality workers 6) wealthy sole proprietors pay a higher tax than they would under the corporate form of business

Identify 2 types of partnership and evaluate the advantages and disadvantages of the partnership form of organization

- Advantages: 1) easy to organize 2) higher credit ratings cuz higher combined wealth 3) partners can specialize 4) partners can make decisions faster than larger businesses 5) a few gov. regulations - Disadvantages 1) General partners have unlimited liability for debts of the partnership 2) Partners are responsible for each other's decisions 3) the termination of one partner requires a new partnership agreement to be drawn up 4) hard to sell a partnership interest at a fair price 5) distribution of profits may not correctly reflect amount of work done by each partner 6) partnerships can't find external sources of funds as easily as large corporations

Describe the corporate form of organization, and cite the advantages and disadvantages of corporations

- Advantages: 1) owners have limited liability 2) ownership (stock) can be easily transferred 3) corporations usually last forever 4)raising money is easier than other forms of business 5)expansion into new business is simpler cuz ability of the company to enter into contracts - Disadvantages: 1) company is taxed on its income & owners pay a second tax on any profits received as dividends 2) forming a corporation can be expensive 3) keeping trade secrets is hard cuz a lot of info must be made avaliable to the public and gov. agencies 4) owners and managers aren't always the same and can have different goals

2 types of partnerships (don't pay taxes but do file income tax rate for individuals

- General Partnership: complete sharing in both the management and the liability of the business - Limited Partnership: at least one general partner, assumes unlimited liability (limited to investment in the business)

Compare and contrast the different forms of business organization

- sole proprietorship (one owner) - partnership (2+ owners) - corporation (company/# of stakeholdders)

Preferred Stock

A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do

Sole Proprietorship

Businesses owned and operated by one individual; the most common form of business organization in the U.S.

Vertical Merger

Companies operating at different but related levels of an industry merge

Concepts in business ownership: Corporate raider

Company/individual who wants to acquire another firm and first offers to buy some/all of its stock at a premium in a tender offer

S Corporation

Corporation taxed like a partnership w/restrictions on shareholders ( no double taxation, retains limited liability benefit)

Cooperatives or Co-ops

Organizations composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization

Public Corporation: Quasi-Public

Owned and operated by the gov.; provides a service but may operate at a loss

Private Corporation

Owned by one or few people closely involved in managing business; none of their stock is sold to the public; not required to disclose financial info publicly

Public Corporation: Nonprofit

Provides a service rather than making profit; not owned by the gov.

Corporation (can own and transfer property, enter contracts and can sue)

a legal entity created by the state, whose assets and liabilities are separate from those of its owners (owned by stakeholders)

Joint Venture

a partnership established for a specific project for a limited time (control can be divided equally or one partner can take control)

Initial Public Offering (IPO)

selling a corporation's stock on public markets for the first time (done when a private corporation wants to "go public" or to raise additional capital or demand)

Common Stock

stock whose owners have voting rights in the corporation, yet do not receive preferential treatment regarding dividends

Board of Directors

the individuals who are elected by stockholders of a corporation to oversee general operation

Concepts in business ownership: Acquisition

the purchase of one company by another (usually buying its stock)

Concepts in business ownership: White knight

More acceptable firm willing to acquire a threatened company

Concepts in business ownership: Poison pill

Firm allows stockholders to buy more shares of a stock at lower prices than current market value to avoid a hostile takeover

Conglomerate Merger

Firms in unrelated industries merge

Horizontal Merger

Firms that make and sell similar products to the same customers merge

Types of Corporations: Domestic Corporation

If conducting business in the state in which it is chartered

Types of Corporations: Alien Corporation

If conducting business outside nation in which it is incorporated

Types of Corporations: Foreign Corporation

If conducting business outside the state in which it is chartered

Concepts in business ownership: Shark repellent

Management requires a large majority of stockholders to approve a takeover

Partnership (2+ owners)

a business formed by several individuals

Public Corporation

a corporation whose stock is available to anyone who wants to buy, sell or trade

Limited Liability Company (LLC)

a form of ownership that offers limited liability to its owners and flexible tax treatment