Chapter 35: Forms of Business Organization

Specialized Forms of Business Organizations

-cooperative -joint stock company -business trust -syndicate -joint venture -franchise

Corporation

1- A business owned by stockholders who share in its profits but are not personally responsible for its debts 2-The most dominant form of business organization. It is a separate legal entity.

Disadvantages of a franchise

1- Can become liable for the franchise if it exerts too much control 2- Has little control over the franchise.

Disadvantages of Partnership

1- Partners are personally liable for all losses, including those of another partner (in most cases)

What are the major forms of business organization?

1- Sole proprietorship 2- Partnership 3- Corporation 4- Limited liability Company

Types of Franchises

1- distributorship, 2- chain style business operation, 3- manufacturing or processing arrangement

Disadvantages of a corporation

1. Double taxation: profits and earnings 2. Subject to more laws than other types of ownership 3. More difficult to form 4. Operations controlled by shareholders and board of directors instead of original owner(s)

advantages of a franchise

1. Management and marketing assistance 2. Personal ownership 3. Nationally recognized name 4. Financial advice and assistance 5. Lower failure rate

Advantages of Partnership

1. creation is easy 2. income of business is personal income 3. business losses can be deducted from taxes

Types of Partnerships

1. general partnership 2. limited partnership 3. limited liability partnership 4- cooperative 5- Joint Venture

Advantages of a corporation

1. limited liability for stockholders 2. ability to raise funds by issuing shares 3. ability to raise funds by issuing bonds 4. rapid growth 5- Profits are taxed as income to the shareholders, not the partners (if any)

Benefits of Sole Proprietorship

1. very few legal formalities 2. Complete control of the management of the organization, with freedom to hire employees, determine business hours, and expand or change the nature of the business. 3. Keeps all the profits form the business 4. The profits are taxed as the personal income of the sole proprietor.

Cooperative Partnership

A business organization consisting of individuals who join together to gain an advantage in the market that mutually benefits all members; can be incorporated or unincorporated.

Sole Proprietorship

A business organization in which you, as the sole proprietor, are in sole control of the management and the profits.

Franchise

A business that exists because of an arrangement between the franchisor, (an owner of a trade name or trademark) and the franchisee, ( a person who sells goods or services under the trade name or trademark).

Franchise Law

A franchise is a contractual relationship between the franchisor and the franchisee. Thus, contract law, and the Uniform Commercial Code UCC in particular, apply. If the terms of the contract are not met, either side can sue for breach of contract.

limited partnership

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

Joint venture (JV)

A relationship between two or more persons or corporations that is created for a specific business undertaking

chain-style business operation

A type of franchise in which the franchise operates under the franchisor's business name and is required to follow the franchisor's standards and methods of business operation.

Termination of Franchise

Agreements usually specify when franchises can be terminated for cause. If the franchisor unfairly terminates a franchise, the franchisee will be provided with a remedy for wrongful termination.

Business Trust

Business organization governed by group of trustees, who operate trust for beneficiaries

Choosing a form of business

Choosing the form of business to create is one of the most important decisions an enterprise makes. The extent of liability and control the owner will have depends on the form of the business.

Creation of Franchise

In the franchise relationship, the parties make a franchise agreement regarding payment to the franchisor, location of the franchise, restrictions the franchisee must follow, and method of termination of the franchise.

Cooperative

Organization formed by individuals who pool resources to gain a market advantage

Joint Stock Companies

Partnership agreement in which company members hold transferable shares while all the goods of the company are held in the names of the partners.

Joint Venture

Relationship between two or more persons/corporations created for specific business undertaking

Distributorship Franchise

a franchise in which the franchisor manufactures a product and licenses a franchisee to distribute the product to the public Example: a car dealership

Limited liability partnership

a partnership in which all partners are liable only to the extent of the partnership's assets

Partnership

a voluntary association of two or more persons to act as co-owners of a business for profit

Limited Liability Company (LLC)

an unincorporated form of business organization that many people see as combining the most advantageous features of partnerships and corporations. It combines the tax advantages and management flexibility of a partnership with the limited liability of a corporation. As a general rule, an LLC is formed by filing articles of organization in the state in which members want to establish their LLC. Precise requirements for formation vary by state. Moreover, an LLC needs to register in every additional state in which it will do business.

syndicate

investment group that comes together to finance a specific large project

General Partnership

partnership in which partners share equally in both responsibility and liability

Manufacturing Arrangement

the franchisor transmits to the franchisee the essential ingredients or formula to make a particular product Example: Soft-drink companies

Disadvantages of Sole Proprietorship

unlimited personal liability, limited access to resources, lack of permanence