Chapter 5

Minorities

Who owns less than 19% of businesses, yet over 30% of franchises?

Cooperative (Co-Op)

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 Serve one billion member worldwide

sole proprietorship

A business owned, and usually managed, by one person.

horizontal merger

The joining of two firms in the same industry

unlimited liability

the responsibility of business owners for all debts of the business

1. Isolation 2. Long hours

Disadvantages of home based franchises

general partnership

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

Corporation

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

Partnership

A legal form of business with two or more owners.

Limited liability partnership (LLP)

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

Master limited partnership (MLP)

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.

limited partnership

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

Conventional (C) Corporation

A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders) Enables many people to share in ownership.

S Corporations

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships. They have shareholders, directors, and employees, plus the benefit of limited liability. Profits are taxed only as the personal income of the shareholders.

1. Limited liability 2. Ability to raise money for investment 3. Size 4. Perpetual life 5. Ease of ownership change 6. Ease of attracting talented employees 7. Separation of ownership from management

Advantages of Corporations

1. Limited liability 2. Choice of taxation 3. Flexible ownership rules 4. Flexible distribution of profits and losses 5. Operating flexibility

Advantages of LLCs

1. More financial resources. 2. Shared management and pooled/complementary skills and knowledge. 3. Longer survival. 4. No special taxes.

Advantages of Partnerships

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

Advantages of franchises

1. Relief from commuting stress 2. Extra family time 3. Low overhead expenses

Advantages of home based franchises

20%, 81%, Sole proprietorships, 6%

Although corporations make up only _______ of the total number of businesses, they earn _________ of the total receipts. ________________ are the most common form (72%), but they earn only ___________ of the receipts.

franchise agreement

An arrangement whereby someone with a good idea for a business (franchiser) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. Can be formed as a sole proprietorship, a partnership, or a corporation .

Leveraged buyout (LBO)

An attempt by employees, management, or a group of private investors to buy out the stockholders in a company

general partner

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

limited partner

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

1. Initial cost 2. Extensive paperwork 3. Double taxation 4. Two tax returns 5. Size 6. Difficulty of termination 7. Possible conflict with stockholders and board of directors

Disadvantages of Corporations

1. No stock; ownership is nontransferable 2. Fewer incentives 3. Taxes 4. Paperwork

Disadvantages of LLCs

1. Unlimited liability 2. Division of profits 3. Disagreements among partners 4. Difficulty of termination

Disadvantages of Partnerships

1. Large start-up costs 2. Shared profit 3. Management regulation 4. Coattail effects 5. Restrictions on selling 6. Fraudulent franchisers

Disadvantages of franchises

1. Unlimited liability. 2. Limited financial resources. 3. Mangement difficulties. 4. Overwhelming time commitment. 5. Few fringe benefits. 6. Limited growth. 7. Limited life span.

Disadvantages of sole proprietorships

extend their brands, and meet the needs of both customers and their franchisees

Franchisers use technology, including social media, to do what?

convenience and a predictable level of service and quality

Franchising in global markets offer the same advantages as in the U.S.: _____________.

5 years

If an S corporation loses its S status, it may not operate under it again for at least ___________.

limited liability, possible tax benefits

Major advantages for individuals who incorporate

that the new combined company does not limit competition unfairly

Mergers between competitors must prove to the Federal Trade Commission (FTC) what?

Acquisition

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

-Have no more than 100 shareholders. -Have shareholders that are individuals or estates, and who (as individuals) are citizens or permanent residents of the U.S. -Have only one class of stock. -Derive no more than 25% of income from passive sources.

Qualifications for S Corporations

True

Stock is normally not issued to outsiders when individuals incorporate, so they do not share the advantages and disadvantages of large corporations. True or False

conglomerate merger

The joining of firms in completely unrelated industries

vertical merger

The joining of two companies in different stages of related businesses

limited liability

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

merger

The result of two firms forming one company

1. Ease of starting and ending the business. 2. Being your own boss. 3. Pride of ownership. 4. Leaving a legacy. 5. Retention of company profits. 6. No special taxes.

What are advantages of sole proprietorships?

Sole proprietorship, partnership, and corporation

What are the three major forms of business ownership?

general, limited

What are the two major types of partnerships?

general, limited

What are the two types of partners?

merger, acquisition

What are the types of expansion?

vertical, horizontal, conglomerate

What are the types of mergers?

Owners/stockholders, Board of Directors, Officers, Managers, Employees

What is the order of owners in a business?

Anyone (truckers, doctors, plumbers, athletes, and small business owners)

Who can incorporate?

women

Who owns about half of U.S. companies, yet ownership of franchises is about 35%?

With unlimited liability, the sole proprietor is liable for all debts and obligations of the business and must pay them even if it means selling your home, car, or whatever else you own.

Why would unlimited liability be considered a major drawback to sole proprietorships?

Canada, China, South Africa, the Philippines, the Middle East

____________ is the most popular target for U.S. based franchises, but so is ______, _____, _____, and ______.

quasi-public corporations

are chartered by the government as an approved monopoly to perform services to the general public

professional corporations

are owned by those who offer professional services

foreign corporations

do business in one state but are chartered in another. About 1/3 of all corporations are chartered in Delaware because of its relatively attractive rules for incorporation. A foreign corporation must register in states where it operates.

alien corpoations

do business in the US but are chartered (incorporated) in another country

domestic corporations

do business in the state in which they are chartered (incorporated)

nonprofit (or not-for-profit) corporations

don't seek personal profit for their owners

closed (private) corporations

have stock that is held by a few people and isn't available to the general public

open (public) corporations

sell stock to the general public

Limited Liability Companies (LLC)

similar to an S corporation but without the special eligibility requirements