Business chapter 5

More than _______ franchised businesses operate in the US employing approximately 13.3 million people

733,000

Some proprietorship

A business owned, and usually managed, by one person

Acquisition

One company's purchase of the property and obligations of another company.

Profits are taxed only as the personal income of the _____ in and S corporation

Shareholders

Vertical merger EX

Soft drink company buys artificial sweetener company

Horizontal merger EX

Soft drink company buys mineral water company

Conglomerate merger EX

Soft drink company buys snack food company

Limited liability

the responsibility of a business's owners for losses only up to the amount they invest; limited partners and shareholders have limited liability

Unlimited liability

the responsibility of business owners for all of the debts of the business

Merger

the result of two firms forming one company

If an S corporations loses its S status, it may not operate under it again for at least ____ years

5

Limited Liability Company (LLC)

A company similar to an S corporation but without the special eligibility requirements.

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 (LLP)

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 (MLP)

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.

S corporation

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

General partner

An owner (partner) who has unlimited liability and is active in managing the firm.

Franchising in global markets

Canada is the most popular target for U.S.-based franchises. Franchisors are finding it easier now to move into China, South Africa, the Philippines, and the Middle East. International franchising goes both ways—some foreign franchises have come to the U.S., including Kumon Learning Centers and H&R Block.

Worldwide, _____ serve on billion members

Co-ops

Members of ______ democratically control the business by electing a board of directors that hires professional management

Cooperatives

Aliens corporations

Do business in the United States but are charted (incorporated) in another country

Technology in franchising is used to

Extend their brands Meet the needs of both customers and franchisees Expand their businesses

Types of partners

General partner and limited partner

Major types of partnerships

General partnership and limited partnership

Qualifications for S corporations

Have no more than 100 shareholders. Have shareholders that are individuals or estates and are citizens or permanent residents of the U.S. Have only one class of stock. Derive no more than 25% of income from passive sources.

Disadvantages of corporations

Initial cost Extensive paperwork Double taxation Two tax returns Size Difficulty of termination Possible conflict with stockholders and board of directors

Home bases franchises main disadvantages

Isolation and long hours

_____ have ranged in size from $50 million to $34 billion and have involved everything from small family businesses to giant corporations

LBOs

Disadvantages of franchises

Large start-up costs Shared profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors

Advantages of Limited Liability Company (LLC)

Limited liability Choice of taxation Flexible ownership rules Flexible distribution of profits and losses Operating flexibility

Advantages of franchises

Management and marketing assistance Personal ownership Nationally recognized name Financial advice and assistance Lower failure rate

Advantages of Partnership

More financial resources Shared management and pooled/complementary skills and knowledge Longer survival No special taxes

Diversity in franchising

More women are becoming franchises and own about half of US companies

E-Commerce in Franchising

Most brick-and-mortar franchises have expanded online. Many franchisors prohibit franchisee-sponsored sites because conflicts can erupt. Sometimes "reverse royalties" are sent to franchisees who believe their sales were hurt by the franchisor's site. Other franchises are solely based online.

Disadvantages of Limited Liability Companies (LLC)

No stock, therefore ownership is no transferable Limited life span Fewer incentives Taxes Paperwork

multinational corporation

Operate in several countries

Home-Based Franchises Advantages:

Relief from commuting stress Extra family time Low overhead expenses

___ corporations have shareholders, directors, and employees, plus the benefit of limited liability

S

Vertical merger

The joining of two companies involved in different stages of related businesses

Business acquisitions are not limited to _____ buyers

US

Cooperative

a business owned and controlled by the people who use it - producers, consumers, or workers with similar needs who pool their resources for mutual gain

Conventional (C) corporation

a state-chartered legal entity with authority to act and have liability separate from its owners (it's stockholders)

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 buy out (LBO)

an attempt by employees, management, or a group of private investors to buy out the stockholders in a company

Limited partner

an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment

quasi-public corporation

are chartered by the government as an approved monopoly to perform services to the general public.

Professional corporations

are owned by those who offer professional services

Foreign corporation

do business in one state but are chartered in another

Domestic corporation

do business in the state in which they are chartered (incorporated)

nonprofit corporation

don't seek personal profit for their owners

Advantages of Sole Proprietorship

ease of starting and ending the business, being your own boss, pride of ownership, leaving a legacy, retention of company profits, no special taxes

closed (private) corporation

have stock that is held by a few people and isn't available to the general public

Advantages of corporations

limited liability, ability to raise money for investment, size, perpetual life, ease of ownership change, ease of attracting talented employees, separation of ownership from management

open (public) corporation

sell stock to the general public

Conglomerate merger

the joining of firms in completely unrelated industries

Horizontal merger

the joining of two firms in the same industry

Disadvantages of partnerships

unlimited liability, division of profits, disagreements among partners, difficulty of termination

Disadvantages of Sole Proprietorship

unlimited liability, limited financial resources, management difficulties, overwhelming time commitment, few fringe benefits, limited growth, limited life span

Types of mergers

vertical, horizontal, conglomerate