Business Ownership

Advantages of an LLC

Limited Liability, Less Record Keeping, and Sharing of Profits

Limited Partnerships

Limited partnerships allow partners to have limited liability as well as limited input with management decisions.

Disadvantages of a Corporation

Time and Money, Double Taxing, Additional Paperwork.

Caitlin is invited to join a business as a partner due to her expertise in the field. She is asked to sign a partnership agreement that gives her 40% of the profits, full control of the marketing activities, but final say on all other decisions goes to the original owner. She is joining:

a limited partnership

Which of the below would illustrate the advantages of vertical mergers and acquisition?

a media company merging with a cable company

limited liability partnership (LLP)

a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations.

A partnership is:

a single business in which two or more people share ownership

For a/the ________, the/an ________ is an alternative to expanding through the establishment of a new location, which avoids the financial investment and liability of a chain of stores.

franchisor, franchise

These are the primary disadvantages for the Franchisor in a franchise business model.

lack of control, vulnerability of trade secrets, and overexposure of the brand.

Advantages of a Corporation

limited liability, Ability to Generate Capital, Corporate Tax Treatment, Attractive to Potential Employees

Corporation (C Corporation)

A corporation (sometimes referred to as a C corporation) is an independent legal entity owned by shareholders.

franchise

A franchise 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.

Advantages for the Franchisor

Access to Capital for Growth and Expansion, Cash Flow for Operations, and Economies of Scale

S Corporation

An S corporation (sometimes referred to as an S Corp) is a special type of corporation created through an IRS tax election.

Buying a Franchise

Be a Detective, Know What You Are Getting Into, Watch Out for Possible Pitfalls, Seek Professional Help

Forming an LLC

Choose a Business Name, File the Articles of Organization, Create an Operating Agreement, Obtain Licenses and Permits, Announce Your Business

Disadvantages for the Franchisee

Cost, Unequal Partnership, Rules and Enforcement

four friends are discussing franchises as a form of business, but have different opinions about how they are defined. Who is correct?

Daniel believes franchises are business where the franchisor licenses a business model, trade makers

Advantages of a Partnership

Easy and Inexpensive,Shared Financial Commitment, Complementary Skills, and Partnership Incentives for Employees

Advantages of Sole Proprietorship

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

The following business integration illustrates the definition of a "merger"

Exxon and mobil

Disadvantages of a Partnership

Joint and Individual Liability, Disagreements Among Partners, and Shared Profits

Warren is starting a business. His biggest concerns are losing everything he owns if something goes wrong and being mired in strict taxation and administrative regulations. For those reasons, he decides to start a(n):

LLC

LLC Taxes

LLC is not a separate tax entity, so the business itself is not taxed. Instead, all federal income taxes are passed on to the LLC's members and are paid through their personal income tax.

In some situations, individual business partners are not obligated to consult with other participants in certain business agreements. The fact that a partner can make business decisions without consulting the other partners is considered to be a disadvantage of a ________.

LLP

This business legal structure can be defined as having single taxation, limited liability, and the flexibility to let each individual in the business decide how much responsibility and participation they want. This is a(n):

LLP

Disadvantages for the Franchisor

Lack of Control, Trade Secrets, Overexposure, Brand Dilution

Disadvantages of an LLP

Duration, Limitation of Formation, Partner Control

Disadvantages of an S Corporation

Stricter Operational Processes, Shareholder Compensation Requirements

Disadvantages of an LLC

Possible Limited Life and Self-Employment Taxes

Advantages of an LLP

Single Taxation, Limited Liability and Flexibility

Advantages of an S Corporation

Tax Savings, Business Expense Tax Credits, Independent Life

Disadvantages of a Sole Proprietorship

Unlimited liability, difficulty raising capital, limited managerial expertise, Trouble finding qualified employees, Personal time commitment, Unstable business life, Losses are the owner's responsibility

limited liability company (LLC)

a hybrid business structure allowed by state statute. LLCs are attractive to small business owners because they provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

usually creates one larger company and one of the original two companies ceases to exist.

a merger

This one feature of an LLP could be considered both an advantage and/or a disadvantage:

a partner can make decision affecting the entire business without consulting the other partners

Benefits of being a franchisee include:

access to a template for the business

ABC Corporation is the second-largest company in a competitive market with three other major players. ABC wants to expand their market share quickly and become the leader in their space. One of the options their board considers is to purchase the property, plants, and equipment of the fourth-largest company, XYZ Inc. This action would be classified as a/an:

acquisition

Define the business structure commonly known as a "sole proprietorship."

an unincorporated business owned and run by one individual in which there is no distinction between the business and the owner

sole proprietorship

an unincorporated business owned and run by one individual in which there is no distinction between the business and the owner. If you own a sole proprietorship, you are entitled to all profits and are responsible for all your business's debts, losses, and liabilities.

General Partnerships

assume that profits, liability, and management duties are divided equally among partners.

vertical merger

characterized by the merger of two organizations that have a buyer-seller relationship or, more generally, two or more firms that are operating at different levels within an industry's supply chain

What is the biggest benefit to businesses of horizontal mergers and acquisitions?

competition is reduce

The following are some of the important factors business owners should consider when selecting a form of ownership.

cost of start up, control and responsibility, profits to share or not to share, taxation, entrepreneurial ability, risk tolerance, financing and continuity and transerability

You are thinking about starting your own business. What are the most important factors you should consider when thinking about your form of business ownership?

cost of start up, taxation and risk tolerance

You have looked into the various forms of ownership and decide that you would like to establish your business as a B Corporation. Which of the following items will you need to do?

declare a commitment to creating a general public benefit, adopt a third party standard and prepare an annual benefit report

When starting a business, why is it important to understand and consider tax implications?

different forms of business ownership result in businesses and owners being taked differently.

Advantages for the Franchisee

less risk, Name/Brand Recognition, Access to Expertise, Ongoing Support, Relative Autonomy

You are forming a new company that delivers food to residents across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation. You want to pay each of the partners based on their contribution to the success of the company, which is NOT equal to their percentage ownership. You could accomplish this by forming a(n):

limited liability company

Some of the major advantages of incorporating your business are:

limiting your personal liability, raising capital through the stake of stock

What is the purpose of a B Corp and what are the general requirements for operation?

make a commitment to creating general public benefits: prepare an annual benefit report, pay an annual fee

horizontal merger

occurs between companies in the same industry. This type of merger is essentially a consolidation of two or more businesses that operate in the same market space, often as competitors offering the same good or service.

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.

The following are all advantages of business partnerships EXCEPT:

partnerships shield the individual partners from debt and liability

The two major drawbacks of an LLC legal structure are:

potential limited life span and self employment tax

You are forming a new company that delivers food to students across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation. You want to pay each of the partners based on the percentage of the company that they own. You could accomplish this by forming a(n):

s corporation

Which form of business ownership involves tax reporting requirements that are fairly simple and the lowest tax rate of any legal structure?

sole propretorship

A ________ is owned by a single individual who is responsible for all decisions and liabilities.

sole proprietorship

A(n) ________ is an unincorporated business owned and run by one individual in which there is no distinction between the business and the owner.

sole proprietorship

What are the most important factors to consider when choosing an organizational type for your business?

start-up cost, taxation, and control

Advantages of an S Corporation include:

tax savings, business expense tax credits, and the business has an independent life from its shareholders

The most significant differences between C and S corporations have to do with:

taxation, administration, and shareholders compensation

Sole Proprietor Taxes

the business itself is not taxed separately—the sole proprietorship income is your income.

Aamer is preparing to interview for a job opening he saw on an employment board. He does a little research and discovers that the business is run by three individuals. How could he tell if the business is a sole proprietorship with two employees or a partnership of three persons?

the distinction would be if the three persons share legal ownership

Disadvantages for a franchisee include

the high cost start up

The disadvantages of partnerships include:

the need to share decision making across the partners

Which of the following is a downside of choosing a business structure where the owner has full control?

the owner has full responibility and liability for the business

Partnerships have several advantages over sole proprietorships including:

the partners bring diverse skills and perspectives

What would be the advantages of choosing a sole proprietorship over other legal structures of business?

the sole proprietorship would be cheaper to set up, the owner would have full control, the owner would be taxed as an individual and the owner keeps all of the profits

Forming a Partnership

to form a partnership, you must register your business with your state, a process generally handled through your Secretary of State's office.

Smart Phone Inc. manufactures its custom phone cases for its awesome phones and tablets. It also manufactures its custom touch screen sensors and owns its own shipping company that delivers its phones and tablets straight to customer homes. Smart Phone Inc. is great at ________.

vertical acquisitions

"Klucky Farms" merges with supermarket giant "Super Fresh Foods." Klucky Farms is excited to be able to supply Super Fresh Foods with a steady supply of quality chicken and Super Fresh Foods is glad to have a reliable farm with fair prices under the same corporate leadership. This is an example of:

vertical merger or acquisitions

A thirty-five-year old entrepreneur with dependents is considering starting a business. She is concerned about protecting her personal assets and making sure that if her company were to fail, she would not lose her home or personal savings. This is an example of an individual:

with low risk tolerance

You form an LLC to protect yourself from personal liability. The business fails and there are debts remaining. Under which of the following circumstances would you be personally liable for business debts.

you signed documents personally securing the debts of the business