Chapter 5- Forms of Business Ownership
Who elects the officers
board of directors
Sole Proprietorship
business owned, managed by one person
disadvantage to home-based franchises
isolation
vertical merger
joins 2 firms in different stages of related business
horizontal merger
joins 2 firms in the SAME industry & allowed them to diversify or expand their products
partnership
2 or more people legally agree to become co-owners of a business
If S Corporation loses its S status, it can't operate for at least how many years?
5 years
Conventional (C) Corporation
A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders) Can be public or privately held
S Corporation
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships
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
How to incorporate
Articles are filed w/ secretary of state (of a given state) name of corporation names of founders details of stock (ownership)
Which country is the most popular target for U.S based franchises?
Canada
limited liability partnership (LLP)
Limits partners' risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision
Advantages of Franchising
MGMT & marketing assistance personal ownership nationally recognized name financial advice & assistance lower failure rate
Advantages of Partnerships
More financial resources Shared management and pooled skills and knowledge Longer survival No special taxes
How are profits taxed of S Corporations?
Profits are taxed only as the personal income of the shareholder
Limited Liability Company (LLC)
Similar to a S corporation but without the eligibility requirements
Disadvantages of Partnerships
Unlimited liability (for general partners) Division of profits Disagreements among partners Difficult to terminate
corporation
a legal entity with authority to act & have liability apart from its owners
Master Limited Partnership (MLP)
a partnership that looks much like a corporation but is taxed like a partnership and this avoids the corporate income tax
limited partnership
a partnership with 1 or more general partners & 1 or more limited partners
General Partnership
all owners share in operating the business and in assuming liability for the business's debts
leveraged buyout (LBO)
an attempt by employees, mgmt or a group of 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 enjoys limited liability
who can incorporate?
anyone
foreign corporation
does business in 1 state but is incorporated in another
alien corporation
does business in U.S but is incorporated in different country
Domestic corporation
does business in the state where it is incorporated
disadvantages of corporations
initial cost, extensive paperwork, double taxation 2 tax returns difficulty of termination
Disadvantages of Franchising
large start-up costs shared profit mgmt regulation coattail effects restrictions on selling fraudulent franchisors
Advantages of LLC
limited liability choice of taxation flexible ownership rules flexible distribution of profit and losses operating flexibility
advantages of corporations
limited liability possible tax benefits separation of ownership from management
limited liability
means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk
Qualifications for S Corporations
no more than 100 shareholders Have shareholders that are individuals or estates and are citizens or permanent residents of the U.S. have only 1 class of stock derive no more than 25% of income from passive sources
Disadvantages of LLC
no stock-> ownership isn't transferable limited life span fewer incentives taxes paperwork
Who elects managers
officers
acquisition
one company's purchase of the property & obligations of another company
cooperate (co-op)
owner and controlled by its users widespread in rural areas and farming ex: Blue Diamond, Land O'Lakes
Who elects board of directors?
owners/stockholders
Advantages of home-based franchises
relief from commuting stress extra family time low overhead expenses
S Corporations have what kind of people, and benefit of what?
shareholders, directors and employees, plus the benefit of limited liability
Which type of business form is the most common?
sole proprietorships
conglomerate merger
unites firms in completely unrelated business in order to diversify business operations and investments