Chapter 35 Forms of Business Organizations

Types of Franchises

"Chain-Style" Business Operation Distributorship Manufacturing Arrangement

Disadvantages of a Corporation

"Double-taxation" Formalities required in establishing and maintaining corporate existence

Franchise

Agreement between "francisor" (owner of trade name/trademark) and "franchisee" (person who, by specific terms of agreement, sells goods/services under trade name/trademark)

Advantages of Franchises (to franchisee)

Assistance from franchisor in starting franchise Trade name/trademark recognition Franchisor advertising

Business Trust

Business organization governed by group of trustees, who operate trust for beneficiaries

"S" Corporations

Business organizations formed under federal tax law that is considered a corporation, yet taxed like a partnership Formed under federal law No more than one hundred (100) shareholders Shareholders must report income on their personal income tax forms

Limited Liability Company (LLC)

Business organizations with limited liability of a corporation, yet taxed like partnership Formed under state law Owners of LLC ("members") pay personal income taxes on shares they report

Specialized forms of business organizations

Cooperative Joint stock company Business trust Syndicate Joint ventures Franchise

Advantages of Sole Proprietorship

Ease of creation ("start-up") Owner has total managerial control Owner retains profits

Advantages of Partnerships

Ease of creation ("start-up") Partnership income is partner income Business losses qualify for tax deduction

"Chain-Style" Business Operation

Franchisor helps franchisee establish a business (using franchisor's business name, and franchisor's standard "methods and practice")

Distributorship

Franchisor licenses to sell franchisor's products in specif area

Manufacturing Arrangement

Franchisor provides franchisee with technical knowledge to manufacture franchisor's product

Top 10 Global Franchises

Hampton Hotels Subway Jiffy Lube 7-Eleven Supercuts Anytime Fitness Servpro Denny's McDonald's Pizza Hut

Syndicate

Investment group that forms for purpose of financing specific large projects

Advantages of a Corporation

Limited liability for shareholders Ease of raising capital by issuing (selling) stock

Disadvantages of Franchises (to franchisor)

Little control (except contractually) over individual franchise Can become liable for franchise, if franchisor exerts too much control

Advantages of Franchises (to franchisor)

Low risk in starting franchise Increased income from franchises

Disadvantages of Franchises (to franchisee)

Must meet contractual requirements, r possibly lose franchise Little/no creative control over business

Cooperative

Organization formed by individuals to market products

Joint stock company

Partnership agreement in which company members hold transferable shares, while all company goods are held in names of partners

Disadvantages of Sole Proprietorship

Personal liability for all business debts/obligations Funding limited to person contributions and loans

Disadvantages

Personal liability for all business debts/obligations, including those incurred by other partners on behalf of partnership

Joint venture

Relationship between two or more persons/corporations created for specific business undertaking

Major Forms of Business Organizations

Sole Proprietorship General partnership Limited partnership Corporation

Corporation

State-sanctioned business with legal identity separate and apart from its owners (shareholders) Owners' (shareholders') liability limited to the amount of investment in a corporation Profits taxed as income to corporation, plus income to owners/shareholders ("double-taxation") "S" Corporations can avoid double-taxation

General Partnership

Unincorporated business owned and operated by two or more persons Each partner has equal control of business Each partner has unlimited, personal liability for business debts/obligations Profits taxed as income to partners

Sole Proprietorship

Unincorporated business owned by one person Owner has total control Owner has unlimited liability Profits taxed directly as income to sole proprietor

Limited Partnership

Unincorporated business with at least one general partner, and one limited partner General partner in limited partnership has managerial/operational control over business Limited partner's liability to extent of his capital contributions Limited partner has no managerial/operational control over business