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