ownership

limited liability

A form of business ownership in which the owners are liable only up to the amount of their individual investments.

Mergers vertical

A merger of two organizations that have a buyer-seller relationship or Two or more firms that are operating at different levels within an industry's supply chain Logic behind the merger is often that the two firms would operate more efficiently together rather than separately

LLP (Limited Liability Partnership)

A partnership in which some or all partners have limited liabilities One partner is not responsible or liable for another partner's misconduct or negligence Some states require one partner to be a "general partner" with unlimited liability Partners may manage the company directly without electing a board of directors Profits are allocated among the partners for tax purposes, avoiding the problem of "double taxation" often found in corporations

S corporation

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships

Advantages of franchisor

Access to capital for growth and expansion Cash flow for operations: In addition to initial franchise fees that can range from $50,000 to $5 million, franchisors receive payments in the form of royalties from each franchisee. Economies of scale:Once a franchise is established with multiple locations, the company may be able to leverage its buying power to realize economies of scale with suppliers, advertisers, and vendors.

General partership

All owners share in operating the business and in assuming liability for the business's debt

Considerations when choosing an organizational type

Cost of start up Control vs. responsibility Do you want to share the profits? Taxation Entrepreneurial ability Risk tolerance Financing Continuity and transferability

disadvantage of franchisee

Cost: Buying and running a franchise can be very expensive. Unequal partnership: The franchisor sets the rules, and the franchisee must follow them. Rules and enforcement: Franchisor rules imposed by the franchising authority are becoming increasingly strict. Some franchisors are using minor rule violations to terminate contracts and seize the franchise without any reimbursement.

Disadvantages of LLP

Duration: The business life of a LLP is unstable. Limitations of formation: Limited liability partnerships are not recognized as legal business structures in every state. Partner control: If an LLP is formed without a limited liability partnership agreement, individual partners are not obligated to consult with other participants in certain business agreements.

Advantages of Sole Proprietorship

Easy and inexpensive to form Profits all go to owner Direct control of the business Freedom from government regulation No special taxation Ease of dissolution

Advantages of Partnership

Easy and inexpensive to form Shared financial commitment among partners Complementary skills / utilize the expertise of each partner Partnership incentives for employees

Limited Liability Company (LLC)

Hybrid business structure allowed by state statute Provides the limited liability features of a corporation Provides tax efficiencies and operational flexibility of partnerships Owners of an LLC are called members. Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity: instead profits and losses are "passed through" the business to each member of the LLC

C Corporations

Independent legal entities owned by shareholders More complex than other business structures because of Costly administrative fees Complex tax and legal requirements When you form a corporation, you form a separate tax paying entity, unlike sole proprietorships or partnerships Income paid as dividends is taxed twice

Disadvantages of Partnership

Joint and individual liability Disagreements among partners Shared profits

Disadvantages of franchisor

Lack of control: Despite the language of the franchise agreement, once the franchisee has established their location, the franchisor may have difficulty ensuring that quality standards are met and the franchise is operating in a manner that benefits the brand. Trade secrets:If the success of a business is based on a trade secret, special process, or innovative technology, establishing a franchise may make the business vulnerable to knock-offs or imitation. Overexposure / Brand Dilution

Advantage of Franchisee

Less risk Name/brand recognition: The franchise has an established image and identity already, which can reduce or simplify marketing efforts. Access to expertise, ongoing support: Franchisee often receives help with site selection, training materials, product supply, and marketing plans. Relative autonomy

Advantages of LLC

Limited Liability: Members are protected from personal liability for business decisions Less Record Keeping compared to an S Corporation Sharing of Profits: Members distribute profits as they see fit. It's up to the members to decide who has earned what percentage of the profits or losses

Advantages of a corporation

Limited liability: shareholder's personal assets are protected. Shareholders can generally only be held responsible for their investment in stock in the company Ability to generate capital through sale of stock Corporate tax treatment: Corporations file taxes separately from their owners. Attractive to potential employees

partnership taxes

Most businesses will need to register with the IRS, register with state and local revenue agencies, and obtain a tax ID number. partnerships must file an annual information return to report income, deductions, gains, and losses from the businesses operations, but the business itself does not pay income tax. Partners include their respective share of the partnership's income or losses on their personal tax returns.

Reasons for Mergers and Acquisitions

Obtaining quality staff or additional skills, knowledge of your industry or sector, and other business intelligence Accessing funds or valuable asset for new development Your business is underperforming Accessing a wider customer base and increasing your market share Diversification of the products, services, and long-term prospects of your business Reducing your costs and overheads through shared marketing budgets, increased purchasing power, and lower costs Reducing competitions Organic growth

Mergers Horizontal

Occurs between companies in the same industry A consolidation of two or more businesses that operated in the same market space, often as competitors Common in industries with fewer firms where competition tends to be higher

Sole Proprietorship

Owned and run by one person Have no distinction between the business and the owner Businesses where the owner is entitled to all business profits and is responsible for all business debts, losses, and liabilities The simplest and most common legal structure for a business

Disadvantages of LLC

Possible Limited Life: When an LLC is formed, the members must decide on the duration of the LLC. Self Employment Taxes: Members of an LLC are considered self-employed and must pay the self-employment tax contributions towards Medicare and Social Security.

B corporation Advantages

Protection of mission: Becoming a B Corp gives companies more options and protections if they decide to sell the business to someone else or take it public Reputation: B Corps stand out as businesses that have a social conscience and aspire to a standard they consider higher than maximizing profit Creation of value: B Corps may create value via employee engagement and customer loyalty, thereby improving results for all stakeholders

Forming a partnership

Register your business with the state Establish your business name Once your business is registered, you must also obtain licenses and permits

Advantages of LLP

Single taxation: The credits and deductions of the company are passed through to partners to file on their individual tax returns. Limited liability: The LLP structure protects individual limited partners from personal liability for negligent acts of other partners or employees not under their direct control. Flexibility: LLPs provide the partners flexibility in business ownership.

Forms of Business Ownership

Sole proprietorship General partnership Franchise Limited partnerships and limited liability partnerships (LLP) Limited liability company (LLC) C Corporation S Corporation

S-Corporation Disadvantages

Stricter operational processes: As a separate structure, S corps require scheduled director and shareholder meetings, minutes from those meetings, adoption and updates to by-laws, stock transfers, and records maintenance. Shareholder compensation requirements: A shareholder must receive reasonable compensation.

S Corporation Advantages

Tax savings: Only the wages of the S corp shareholder who is an employee are subject to employment tax. Business expense tax credits: Some expenses that shareholder/employees incur can be written off as business expenses. Independent life: An S corp designation also allows a business to have an independent life, separate from its shareholders.

disadvantage of corporation

Time and money: costly and time consuming to start and operate Double taxing: In some cases, corporations are taxed twice—first, when the company makes a profit, and again when dividends are paid to shareholders. Additional paperwork: There are increased paperwork and record-keeping burdens associated with this entity.

B corporation disadvantages

Transparency and reporting requirements: B Corps must provide an annual benefit report according to a third-party standard and make the report available on their company Websites. Annual fees to retain certified B Corp status Compliance and governance obligations: Most states require publicly traded companies with a B corp designation to have a "benefit director" who is responsible for ensuring that the corporation meets its stated public purpose.

B corporation

Type of for-profit corporate entity, authorized by thirty U.S. states and the District of Columbia, that creates a general public benefit, which is defined as a material positive impact on society and the environment. This can include positive impact on society, workers, the community, and the environment. Transparency provisions require benefit corporations to publish annual benefit reports on their social and environmental performance using a comprehensive, credible, independent, and transparent third-party-standard Differ from traditional C corporations in purpose, accountability, and transparency, but not in taxation. B Corps elect to be taxed as a C or an S corp.

Disadvantage of sole proprietorship

Unlimited personal liability for the sole proprietor Difficulty raising capital Limited managerial expertise Trouble finding qualified employees Personal time commitment Unstable business life Losses are the owner's responsibility

Corporations

a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.

Parternship

are businesses in which two or more people share ownership and responsibility

Limited Partership

at least one general partner and one or more limited partners; limited partners do NOT run the business and have limited liability only to the extent of their investment

Franchising

is a business model that involves one business owner (the franchisor) licensing trademarks and methods to an independent entrepreneur (the franchisee) for a prescribed period of time

acquisition

occurs when a company purchases the assets of another business (such as stock, property, plants, equipment) and usually permits the acquired company to continue operating as it did prior to the acquisition.

merger

the consolidation of two companies that, prior to the merger, were operating as independent entities. Usually creates one larger company, and one of the original companies ceases to exist