Entrepreneurship Chapter 7

partnership

a business owned by two or more people

share of stock

a unit of ownership in a corporation

the federal food, drug, and cosmetic act of 1938

bans the sale of impure, improperly labeled, falsely guaranteed, and unhealthy foods, drugs, and cosmetics

Clayton Act

states it is illegal for a business to require a customer to buy exclusively from it or to purchase on good in order to be able to purchase another good, prevents anti-competitive mergers

initial franchise fee

the amount the local franchise owner pays in return for the right to run the franchise

patents

the grant of a property right to an inventor to exclude others from making, using, or selling his or her invention

Franchise

a legal agreement that gives an individual the right to market a company's products or services in a particular area

franchisor

the person or company that offers a franchise for purchase

S Corporation

a corporation that is not taxed as a business; only the individual shareholders are taxed on the profits they earn

copyright

a form of intellectual property law that protects original works of authorship, including literary, dramatic, musical, and artistic works

board of directors

a group of people who meet several times a year to make important decisions affecting the company

Limited Liability Corporation (LLC)

a legal form of business that provides the benefits of partnership taxation and limited liability features of a corporation for all of the owners of a business

contract

a legally binding agreement between two or more persons or parties

trademark

a name, symbol, or special mark used to identify a business of brand of product

franchise disclosure document (FDD)

a regulatory document describing a franchise opportunity that prospective franchisees must receive before they sign a contract

agency

a relationship that allows one party to act in a way that legally binds another party

tort

a wrong against people or organizations for which the law grants remedy

Wheeler-Lea Act

bans unfair or deceptive actions or practices by businesses that may cause an unfair competitive advantage, and example is false advertising

double taxation

corporation's profits are taxed as corporate income and again as individual income

royalty fees

weekly or monthly payments made by the local owner to the franchise company

fair credit billing act of 1974

helps consumers correct credit card billing errors

startup cost

the costs associated with beginning a business

What are some disadvantages of buying an existing business?

- many business for sale are risky because they are not making a profit -serious problems may be inherited (like a bad reputation with customers or poor location) -capital is required -there may be staff problems

What are some advantages of buying an existing business?

-already has the necessary equipment, suppliers, and procedures in place -may have built up goodwill (customer loyalty) -the seller may train a new owner -there are prior records of revenue, expenses, and profits -financial arrangements can be easier

What are the seven steps in buying a business?

1. Have specific objectives about the kind of business you want to buy, and identify businesses for sale that meet your objectives 2. meet with business sellers or brokers to investigate specific opportunities 3. visit during business hours to observe the business in action 4. ask the owner to provide you with a complete financial accounting of operations for at least the past three years 5. ask for important information in written form 6. determine how you would finance the business 7. get expert help to determine a price to offer for the business

What are some disadvantages of owning a franchise?

1. can be costly and cut down on profits 2. less freedom to make decisions 3. dependent on the performance of other franchisees in the chain 4. the franchisor can terminate the franchise agreement

zoning laws

control what types of buildings can be built in certain areas

dividends

distributions of corporate profits to the shareholders

corporation

a business that has legal rights of a person but is independent of its owners

sole proprietorship

a business that is owned exclusively by one person

What are some of the disadvantages of a sole proprietorship?

1. difficult to borrow or raise money 2. bear the burden of all of the risk 3. personal assets may be taken to pay off debt

What are some of the disadvantages of starting your own business?

1. high level of risk and uncertainty 2. financing can be difficult to obtain 3. takes time and commitment 4. high level of responsibility

What are some disadvantages of a family business?

1. leaders and/or employees may be inadequate 2. less freedom to make decisions 3. family politics often enter into decision making 4. often no exit strategy

What are some advantages of a family business?

1. leadership is highly stable 2. there is a high level of commitment and loyalty from employees 3. may offer more flexibility

what are some of the disadvantages of a partnership?

1. legally liable for the errors of the partner 2. can lead to disagreements and end bitterly

what are some of the advantages of a corporation?

1. liability- the amount owed to the others 2. money can be raised by selling stock lending institutions are more willing to loan money

what are some of the disadvantages of a corporation?

1. more complicated to set up 2. establishing can be costly 3. government regulation income is taxed twice

What are some advantages of owning a franchise?

1. provided with an established product or service 2. franchisors offer management, technical, and other assistance 3. equipment and supplies can be less expensive to purchase 4. a guarantee of consistency attracts customers

What are some of the things you should do when evaluating a franchise?

1. study the disclosure document and proposed contract carefully 2. interview current owners 3. investigate the franchisor's history, profitability, and claims about potential earnings 4. listen carefully to sales presentations 5. shop around 6. determine what will happen if you cancel the franchise agreement

what are some of the advantages of a sole proprietorship?

1. very little government control 2. you make all of the decisions and make all of the profits

What are some of the advantages of starting your own business?

1. working for yourself offers more freedom and independence 2. the business owner gets to keep all of the profits 3. a great sense of personal satisfaction and achievement

what are some of the advantages of a partnership?

1. you don't have to come up with the capital alone 2. any losses are shared between the owners 3. partners may offer different areas of expertise 4. face very little government regulation

What percent of businesses are owned by families?

90%

Sherman Act

makes it illegal for competitors to get together and set prices on the products or services they sell

advertising fees

paid to the franchise company to support television, magazine, or other advertising for the franchise as a whole

Robinson-Patman Act

protects small businesses from unfair practices, makes it illegal to discriminate by charging different prices to customers

truth-in-lending act of 1968

requires lenders to inform customers about all costs of credit before an agreement is signed

consumer product safety act of 1972

sets safety standards for products other than food and drugs

partnership agreement

signed by entrepreneurs going into business together, sets down in writing the rights and responsibilities of all owners

intellectual property

the original, creative work of an artist or inventor and may include such things as songs, novels, artistic designs, and inventions

franchisee

the person who purchases a franchise agreement