Business Ownership

Advantages of franchisee

-Less risk -Name/brand recognition -access to expertise, ongoing support -relative autonomy

Disadvantages of LLC

-Possible limited life -Self employment taxes

Advantages of an LLP

-Single taxation -Limited liability -Flexibility

Advantages of an S Corporation

-Tax savings -Business expense tax credits -independent life

Disadvantages for the franchisor

-lack of control -trade secrets -overexposure, brand dilution

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

Competition is reduced

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

Daniel believes that franchises are businesses where the Franchisor licenses a business model, trademarks and methods to independent entrepreneurs (Franchisees) who own and operate the individual units

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, franchisee

A business in which some or all partners have limited liabilities is called a:

LLP (limited liability partnership)

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

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

Franchise

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.

In a limited partnership:

a general partner runs the business

A partnership is:

a single business in which two or more people share ownership

C corporation

is an independent legal entity owned by shareholders

Advantages of a Corporation

-Limited liability -Ability to generate capital -Corporate tax treatment -Attractive to potential employees

Advantages of a partnership

-easy and inexpensive -shared financial commitment -complementary skills -partnership incentives for employees

Advantages of a benefit corporation

-protection of mission -reputation -creation of value

Disadvantages of S corporation

-stricter operational processes -shareholder compensation requirements

Disadvantages of a corporation

-time and money -double taxing -additional paperwork

Disadvantages of benefit corporation

-transparency and reporting requirements -annual fees to retain certified B corp status -Compliance and governance obligations

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

A media company merging with a cable company

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

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

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

A ________ seeks to provide a return to shareholders while pursuing other goals that benefit community or society.

B corporation

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

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

Exxon and Mobil

Advantages of LLC

-Limited liability -Less record keeping -sharing of profits

Horizontal merger

A horizontal merger occurs between companies in the same industry. Example- facebook+instagram

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?

In an LLP:

One partner IS NOT responsible or liable for another partner's misconduct or negligence.

A franchisee is generally expected to pay:

royalty fees for support fro the franchiser

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

Start-up costs, taxation, and control

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

Taxation, administration, and shareholder compensation

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.

Integration

When businesses acquire other businesses or operations that were previously competitors, suppliers, buyers, or sellers

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.

When one company purchases and absorbs another company it is called a(n):

acquisition

In 2014 Microsoft purchased the popular game Minecraft for $2.5B. This is an example of a(n):

acquisiton

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

A general partnership:

assumes profit, liability and management duties are divided equally among partners.

Which of the following entities are subject to double taxation?

corporations

Which of the following entities are subject to limited liability?

corporations

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 franchise:

provides a proven product, business model and brand to the franchisee

Disadvantages for a franchisee include:

the high cost of start-up

The disadvantages of partnerships include:

the need to share decision making across partners

Disadvantages of a partnership

-Joint and individual liability -Disagreements among partners -Shared profits

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 owners responsibility

Advantages for the franchisor

-access to capital for growth and expansion -cash flow for operations -economies of scale

Disadvantages for the franchisee

-cost -unequal partnership -rules and enforcement

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:

Acquisiton

What are some important factors to consider when choosing an organizational type?

Control vs. responsibility, 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

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

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):

LLC

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

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.

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

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 LLC

Some of the major advantages of incorporating your business are:

Limiting your personal liability, raising capital through sale of stock, and alleviating disagreements among partners

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

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

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.

The main thing that makes S Corporations different from C Corporations is:

That the business is not taxed itself. Only the shareholders are taxed

Merger

The consolidation of two companies that, prior to the merger, were operating as independent entities

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

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

Benefits of being a franchisee include:

access to a template for the business

Limited Partnerships (also known as a partnership with limited liability)

are more complex than general partnerships. Limited partnerships allow partners to have limited liability as well as limited input with management decisions. These limits depend on the extent of each partner's investment percentage. Limited partnerships are attractive to investors of short-term projects.

General Partnership

assume that profits, liability, and management duties are divided equally among partners. If you opt for an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement.

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.

Vertical merger

is 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

B corporation

n the U.S., a benefit corporation is a type of for-profit corporate entity, authorized by thirty U.S. states and the District of Columbia, that includes positive impact on society, workers, the community, and the environment—in addition to profit—as its legally defined goals. Benefit corporations differ from traditional C corporations in purpose, accountability, and transparency, but not in taxation.

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.

A ________ is owned and managed by a group of individuals who share in decision-making and risk.

partnership

The following are all advantages of business partnerships EXCEPT:

partnerships shield the individual partners from debt and liability

S corporation

special type of corporation created through an IRS tax election. What makes the S corp different from a traditional corporation (C corp) is that profits and losses can pass through to your personal tax return. Consequently, the business is not taxed itself. Only the shareholders are taxed.

Partnerships have several advantages over sole proprietorships including:

the partners bring diverse skills and perspectives.

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

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

The owner has full responsibility and liability for the business

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

a merger

The typical fee structure for a franchise including initial franchise fees and royalties, is an example of:

an advantage for the franchisor

The most common form of business ownership in the U.S. is a:

sole propritership

Disadvantages of an LLP

-Duration -Limitation of formation -Partner control

Advantages of a Sole Proprietorship

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

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