Business Ownership
Your friend Jody comes to you asking for advice. She owns a moving company called "Whatever Moves You, LLC" (they have cute musical notes in logo—very clever). She has owned the business for 45 years and has seen tremendous growth. Jody would like to transfer ownership of her business to her 30 year old daughter so that she may retire. What do you tell Jody?
"You will need to work with an attorney to see if this is even possible because rules about transferability of LLC's vary by state."
A Subway franchisee does not do a good job managing food safety. Customers purchase sandwiches that contain expired turkey and become ill reflecting poorly on the brand and exposing the company to liability. This is an example of:
A disadvantage for the franchisor—a lack of control over the franchisee resulting in damage to the brand.
________ usually creates one larger company and one of the original two companies ceases to exist.
A merger
A ________ seeks to provide a return to shareholders while pursuing other goals that benefit community or society.
B corporation
Which of the following entities can pursue a broader mission that may sometimes be at odds with maximizing profits for shareholders:
B corporation.
What are some important factors to consider when choosing an organizational type?
Control versus responsibility, and risk tolerance.
Which of the following entities are subject to double taxation?
Corporations
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 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 taxed differently. It is important to understand these differences in order to choose the scenario that best fits your needs.
Cost of start up, control vs.responsibility, profits, taxation, entrepreneurial ability, risk tolerance, financing and continuity or transferability are each:
Factors to consider when choosing an organizational type.
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
What is the most important question a business owner needs to ask themselves if they are considering their business continuity or transferability in the future?
How can I set up my business to either continue on without me or be sold?
What makes an LLC different from a C Corporation?
LLCs and C Corporations are taxed differently.
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
You and your dear friend want to start an accounting firm together. You know each other well but you don't want to be held responsible for your friends negligence or misconduct should such an event occur. You and your friend also want to be sure that you are only taxed once on company profits. Which type of organizational structure might be best for you?
LLP
You are thinking about starting a business. Of course, you want to maximize your income and not pay taxes both as a business and as an individual. You are also concerned about liability. If something bad happens with your business, you don't want to be personally liable. What form of business ownership would best meet your needs?
Limited Liability Company
What is an LLC?
Limited Liability Company—a business structure that is 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.
A business in which some or all partners have limited liabilities is called a:
Limited Liability Partnership
Your friend tells you he is working on setting up a business. He tells you he has a business partner who shares in all decision making, it has been fairly easy to set up, he will only be taxed once on company profits, and he has limited liability for the company. What kind of business has your friend most likely described?
Limited Liability Partnership
The credits and deductions of the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company. This is an example of a benefit enjoyed by which type of organization?
Limited Liability Partnerships
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.
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
Anthony is starting a business and he is thinking about the costs associated with getting his business established because he does not have a lot of money to spend. Which form of ownership would cost Anthony the least to set up and why?
Sole proprietorship because he would not have to hire a corporate attorney to draft corporate charters, agreements, and articles of incorporation.
Examples of franchises include:
Subway restaurants.
The main thing that makes S Corporations different from C Corporations is:
That the business is not taxed itself. Only the shareholders are taxed.
Why would a company choose to engage in a vertical merger or acquisition?
To increase synergies by merging firms that would be more efficient operating as one.
Why would a company undertake a horizontal merger or acquisition?
To take advantage of synergies and potential market share gains.
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.
In a limited partnership:
a general partner runs the business.
A partnership is:
a single business in which two or more people share ownership.
If an owner of a business were to die, which of the following entities would cease to exist (which type of business would "die" too)?
a sole proprietorship
Benefits of being a franchisee include:
access to a template for the business.
In 2014 Microsoft purchased the popular game Minecraft for $2.5B. This is an example of a(n):
acquisition.
When one company purchases and absorbs another company it is called a(n):
acquisition.
In 2016, Microsoft announced that it would buy LinkedIn for $26.2 billion, in an all cash deal, making it the 6th largest deal if its kind on record. This is an example of:
an acquisition
Disney and Pixar coming together was a "match made in cartoon heaven" some say. This undertaking enabled the two companies to collaborate freely and easily resulting in some of the highest grossing animated films of all time. This is a successful example of:
an acquisition.
Once a franchise is established with multiple locations, the company may be able to take advantage of economies of scale with suppliers, advertisers and vendors. This is an example of:
an advantage for the franchisor.
The typical fee structure for a franchise including initial franchise fees and royalties, is an example of:
an advantage for the franchisor.
A general partnership:
assumes profit, liability and management duties are divided equally among partners.
Which of the following is a legal entity completely separate from the entities who own it?
corporation
Which of the following entities are subject to limited liability?
corporations
The disadvantages to starting and running a corporation include:
double taxation
In a sole proprietorship, the owner of the business:
enjoys complete control over all aspects of the business.
AT&T's proposed $39 billion acquisition of T-Mobile USA would have combined two of the four major national providers of mobile telephone services for both individuals and businesses. As a result of this acquisition, AT&T would be the provider of almost 40% of all mobile service, with Verizon and Sprint making up the remainder of the market. This is an example of:
horizontal acquisition.
Charter Communications is seeking to purchase and bring together Time Warner Cable and Bright House Networks, creating a company that will serve a collective 18.8 million Internet broadband subscribers and 17 million TV subscribers. Charter has specifically cited a desire to have greater bargaining power in negotiating with channel owners like Disney. This is an example of a:
horizontal merger.
A legal partnership agreement should include:
how future business decisions will be made, including how the partners will divide profits, resolve disputes, change ownership, and how to dissolve the partnership.
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.
Unlike many types of businesses, ________ are not recognized as legal business structures in every state. Some states even limit the creation of these to professionals such as doctors or lawyers.
limited liability partnerships
A ________ is owned and managed by a group of individuals who share in decision-making and risk.
partnership
A franchise:
provides a proven product, business model and brand to the franchisee.
Corporations whose stock can be sold to the general public are, by definition:
public corporations
A franchisee is generally expected to pay:
royalty fees for support from the franchiser.
The most common form of business ownership in the U.S. is a:
sole proprietorship
Disadvantages for a franchisee include:
the high cost of start-up.
The disadvantages of partnerships include:
the need to share decision making across the partners.
Partnerships have several advantages over sole proprietorships including:
the partners bring diverse skills and perspectives.
Partnerships have several limitations including:
the potential for disagreements among partners.
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 acquisition.
