Ch 5 - How to form a business

Advantages of franchises: 1. Management and marketing _____ 2. Personal _____ 3. Nationally recognized _____

assistance; ownership; name

A corporation has _____, these describe how the firm is to be operated from both legal and managerial points of view

bylaws

Today, a fast-growing franchise sector is _____

senior care

In order for a company to qualify as an S corporation they must: 1. Have no more than _____ shareholders 2. Have shareholders that are _____ or _____, and who are citizens or permanent residents of the US 3. Have only _____ class of stock 4. Derive no more than _____% of income from passive sources

100; individuals; estates; one; 25

Today over _____% of franchises are owned by African Americans, Latinos, Asians, and Native Americans

20

_____% of franchises are co-owned by male and female partners

45

An S corporation that loses its S status may not operate under it again for at least _____ years

5

Because of its proximity and shared language, _____ is the most popular target for US-based franchises

Canada

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

S corporation

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

acquisition

A _____ merger unites firms in completely unrelated industries in order to diversify business operations and investments

conglomerate (soft drink company and snack food company)

What makes franchising successful in global markets is what makes it successful in the US: _____ and a predictable level of _____ and _____

convenience; service; quality

The paperwork and details of S corporations are similar to those of _____ corporations

conventional (C)

A state-chartered legal entity with authority to act and have liability separate from its owners - its stockholders

conventional (C) corporation

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

cooperative (co-op)

A legal entity with authority to act and have liability apart from its owners

corporation

Disadvantages of corporations: 1. Initial _____ 2. Extensive _____ 3. Double _____ 4. Two _____ returns 5. _____ - large corporations sometimes become too inflexible and tied down in red tape to respond quickly to market changes, and their profitability can change 6. Difficulty of _____ 7. Possible conflict with _____ and board of _____

cost; paperwork; taxation; tax; size; termination; stockholders; directors

Members of cooperatives _____ control these businesses by electing a board of directors that hires professional management

democratically

Foreign companies have found the fastest way to grow is often buy an _____ operation that can enhance their technology or expand the number of brands

established

Advantages of partnerships: 1. More _____ resources 2. Shared _____ and pooled/complementary skills and knowledge 3. Longer _____ 4. No special _____

financial; management; survival; taxes

The right to use a specific business's name and sell its products or services in a given territory

franchise

An agreement whereby someone with a good idea for a business (the franchisor) sells the rights to use the business name and sell a product or service to others (the franchisees) in a given territory

franchise agreement

A person who buys a franchise

franchisee

Every partnership must have at least one _____ partner

general

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

general partner

A partnership in which all owners share in operating the business and in assuming liability for the business's debts

general partnership

3 types of partnerships

general partnerships, limited partnerships, master limited partnerships

_____-_____ businesses offer many advantages, including relief from the stress of commuting, extra time for family activities, and low overhead expenses

home-based

A _____ merger joins two firms in the same industry and allows them to diversify or expand their products

horizontal (soft drink company and mineral water company)

Before a business can so much as open a bank account or hire employees, it needs a federal tax _____

identification number

Normally, individuals who _____ do not issue stock to outsiders; therefore, they do not share all the advantages and disadvantages of large corporations

incorporate

Three questions to ask before forming a global franchise: Will your _____ property be protected? Can you give proper _____ to global partners? Are you able to adapt to franchise _____ in other countries?

intellectual; support; regulations

In a conventional (C) corporation, stockholders are not liable for the debts or other problems of the corporation beyond the money they _____ in it by buying ownership shares, or stock, in the company

invest

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing

leveraged buyout (LBO)

Advantages of corporations: 1. Limited _____ 2. Ability to raise more money for _____ 3. _____ - they can hire specialists in all areas of operation 4. Perpetual _____ 5. Ease of _____ change 6. Ease of attracting talented _____ 7. Separation of ownership from _____

liability; investment; size; life; ownership; employees; management

Disadvantages of partnerships: 1. Unlimited _____ 2. Division of _____ 3. _____ among partners 4. Difficulty of _____

liability; profits; disagreements; termination

Major advantages of individuals who incorporate: limited _____ and possible _____ benefits

liability; tax

Advantages of forming LLCs: 1. Limited _____ 2. Choice of _____ - choose to be taxed as partnerships or as corporations 3. Flexible _____ rules - can be a person, partnership, or corporation 4. Flexible distribution of _____ and _____ 5. Operating _____

liability; taxation; ownership; profits; losses; flexibility

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

limited liability

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

limited liability company (LLC)

A partnership that limits partners' risk of losing their personal assets to only their own acts and omissions of people under their supervision

limited liability partnership (LLP)

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

limited partner

A partnership with one or more general partners and one or more limited partners

limited partnership

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; normally found in oil and gas industry

master limited partnership (MLP)

The result of two firms forming one company

merger

The Uniform Partnership Act (UPA) defines the three key elements of any general partnership: common _____, shared _____ and _____, and the right to participate in _____ the operations of the business

ownership; profits; losses; managing

A _____ is a legal form of business with two or more owners

partnership

A legal form of business with two or more owners

partnership

By taking a firm _____, management or a group of stockholders obtain all the firm's stock for themselves by buying it back from the other stockholders

private

The most popular businesses for franchising are _____ and ____ with convenience stores

restaurants; gas stations

Minority-owned businesses are growing at more than _____ times the national rate

six

A business that is owned, and usually managed by one person. This is the most common form of business ownership

sole propietorship

A franchise can be formed as a _____, a _____, or a _____

sole proprietorship; partnership; corporation

Disadvantages of franchises: 1. Large _____ costs 2. Shared _____ 3.Management _____ - can cause franchisees to lose the drive to run their own business 4. _____ effects - the actions of other franchises have an impact on your future growth and profitability 5. Restrictions on _____ 6. Fraudulent _____

start-up; profit; regulation; coattail; selling; franchisors

Advantages of sole proprietorships: 1. Ease of _____ and _____ the business 2. Being your own _____ 3. Pride of _____ 4. Leaving a _____ 5. Retention of company _____ 6. No special _____

starting; ending; boss; ownership; legacy; profits; taxes

Disadvantages of forming LLCs: 1. No _____ - need approval of other members in order to sell their interests in the company 2. Limited _____ - death of a member can cause LLCs to dissolve 3. Fewer _____ 4. _____ - must pay self-employment taxes on their profits 5. _____

stock; life span; incentives; taxes; paperwork

Cooperatives have an advantage in the marketplace because they do not pay the same kind of _____ corporations pay

taxes

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

unlimited liability

Disadvantages of sole proprietorships: 1. _____ - the risk of personal losses 2. Limited _____ resources 3. _____ difficulties 4. Overwhelming _____ commitment 5. Few _____ benefits 6. Limited _____ 7. Limited _____

unlimited liability; financial; management; time; fringe; growth; life span

A _____ merger joins two firms operating in different stages of related business

vertical (soft drink company and artificial sweetener company)

3 major types of corporate mergers:

vertical, horizontal, conglomerate

Many franchisors prohibit franchisee-sponsored _____ because conflicts can erupt if the franchisor creates its own _____

websites; website

A corporation not only limits the liability of owners but often enables many people to share in the ownership of a business without _____ there or having other commitments to it

working

For your protection, be sure to put your partnership agreement in _____

writing