Chapter 35 Forms of Business Organizations
Types of Franchises
"Chain-Style" Business Operation Distributorship Manufacturing Arrangement
Disadvantages of a Corporation
"Double-taxation" Formalities required in establishing and maintaining corporate existence
Franchise
Agreement between "francisor" (owner of trade name/trademark) and "franchisee" (person who, by specific terms of agreement, sells goods/services under trade name/trademark)
Advantages of Franchises (to franchisee)
Assistance from franchisor in starting franchise Trade name/trademark recognition Franchisor advertising
Business Trust
Business organization governed by group of trustees, who operate trust for beneficiaries
"S" Corporations
Business organizations formed under federal tax law that is considered a corporation, yet taxed like a partnership Formed under federal law No more than one hundred (100) shareholders Shareholders must report income on their personal income tax forms
Limited Liability Company (LLC)
Business organizations with limited liability of a corporation, yet taxed like partnership Formed under state law Owners of LLC ("members") pay personal income taxes on shares they report
Specialized forms of business organizations
Cooperative Joint stock company Business trust Syndicate Joint ventures Franchise
Advantages of Sole Proprietorship
Ease of creation ("start-up") Owner has total managerial control Owner retains profits
Advantages of Partnerships
Ease of creation ("start-up") Partnership income is partner income Business losses qualify for tax deduction
"Chain-Style" Business Operation
Franchisor helps franchisee establish a business (using franchisor's business name, and franchisor's standard "methods and practice")
Distributorship
Franchisor licenses to sell franchisor's products in specif area
Manufacturing Arrangement
Franchisor provides franchisee with technical knowledge to manufacture franchisor's product
Top 10 Global Franchises
Hampton Hotels Subway Jiffy Lube 7-Eleven Supercuts Anytime Fitness Servpro Denny's McDonald's Pizza Hut
Syndicate
Investment group that forms for purpose of financing specific large projects
Advantages of a Corporation
Limited liability for shareholders Ease of raising capital by issuing (selling) stock
Disadvantages of Franchises (to franchisor)
Little control (except contractually) over individual franchise Can become liable for franchise, if franchisor exerts too much control
Advantages of Franchises (to franchisor)
Low risk in starting franchise Increased income from franchises
Disadvantages of Franchises (to franchisee)
Must meet contractual requirements, r possibly lose franchise Little/no creative control over business
Cooperative
Organization formed by individuals to market products
Joint stock company
Partnership agreement in which company members hold transferable shares, while all company goods are held in names of partners
Disadvantages of Sole Proprietorship
Personal liability for all business debts/obligations Funding limited to person contributions and loans
Disadvantages
Personal liability for all business debts/obligations, including those incurred by other partners on behalf of partnership
Joint venture
Relationship between two or more persons/corporations created for specific business undertaking
Major Forms of Business Organizations
Sole Proprietorship General partnership Limited partnership Corporation
Corporation
State-sanctioned business with legal identity separate and apart from its owners (shareholders) Owners' (shareholders') liability limited to the amount of investment in a corporation Profits taxed as income to corporation, plus income to owners/shareholders ("double-taxation") "S" Corporations can avoid double-taxation
General Partnership
Unincorporated business owned and operated by two or more persons Each partner has equal control of business Each partner has unlimited, personal liability for business debts/obligations Profits taxed as income to partners
Sole Proprietorship
Unincorporated business owned by one person Owner has total control Owner has unlimited liability Profits taxed directly as income to sole proprietor
Limited Partnership
Unincorporated business with at least one general partner, and one limited partner General partner in limited partnership has managerial/operational control over business Limited partner's liability to extent of his capital contributions Limited partner has no managerial/operational control over business