Chapter 5 Forms of Business Owner and Organization Questions

What is a corporation?

A corporation is a legal organization with assets and liabilities separate from those of its owners. A corporation can be a large or small business.

What is the difference between a franchisor and a franchisee?

A franchisor permits a small-business owner (franchisee) to market and sell its products under its brand name, in return for a fee.

What is a joint venture?

A joint venture is a partnership between organizations formed for a specific undertaking.

What is the main distinction for a not-for profit corporation?

A not-for-profit organization is set up legally so that its goals do not include pursuing a profit. Most states set out specific legal provisions for organizational structures and operations of not-for-profit corporations. They are exempt from paying income taxes.

How does the Small Business Administration (SBA) define small business?

A small business is defined as an independent business having fewwer than 500 employees. However, those bidding for government contracts or applying for government assistance may vary in size according to industry.

What percentage of small businesses remain in operation five years after starting? Ten years?

About 50 percent are in business after five years; about 82 percent have folded by the ten year mark.

What are the benefits to both parties of franchising?

Benefits to the franchisor include opportunities for expansion and greater profits. Benefits to the franchisee include name recognition, quick start-up, support from the franchisor, and the freedom of small-business ownership.

What are business incubators?

Business incubators are programs organized by community agencies that provide such services as rental space, clerical staff, and office equipment in an effort to help small businesses get started.

What is collective ownership? Where are cooperatives typically found, and what benefits do they provide small businesses?

Collective ownership establishes an organization referred to as a cooperative (co-op), whose owners join forces to operate all or part of the functions in their firm or industry. Cooperatives are frequently found among agricultural businesses. They can also occur in retail. Cooperatives allow small firms to pool their resources, share equipment and expertise, and help each other through difficult times.

Distinguish between a merger and an acquisition.

In a merger, two or more firms combine to form one company. In an acquisition, one firm purchases the property and assumes the obligations of another. Acquisitions also occur when one firm buys a division or subsidiary from another firm.

What are the different kinds of mergers?

Mergers can be classified as vertical, horizontal, or conglomerate.

How are new industries formed?

New industries are formed when small businesses adapt to shifts in consumer interests and preferences. Innovation and new technology can play a significant role. In addition, new industries may be created when both the business world and consumers recognize a need for change.

What is public ownership?

Public ownership occurs when a unit or agency of government owns and operates an organization.

What are the three key ways in which small businesses contribute to the economy?

Small businesses create new jobs, new industries, and provide innovation.

In what industries do small businesses play a significant role?

Small businesses provide most jobs in construction, agriculture, wholesale trade, services, and retail trade. In addition, home-based business make up 52 percent of small businesses in the U.S.

What are the key differences among sole proprietorships and partnerships?

Sole proprietorships and partnerships expose their owners to unlimited financial liability from their businesses. Sole proprietorships are more flexible and easier to dissolve than partnerships. Partnerships involve shared work load and decision making, whereas sole proprietorships are entirely the responsibility of one business owner.

What are the various ways the SBA helps small businesses?

The SBA guarantees business loans; helps small businesses compete for government set-aside programs; and provides business information, advice, and training to owners of small businesses.

Why is an effective business plan important to the success of a firm?

The business plan puts in writing all the reasons the firm can be successful. It contains the written should of the firm. It is the document that secures financing and creates a framework for the organization.

What are the potential drawbacks of franchising for both parties?

The drawbacks for the franchisor include mismanagement and failure on the part of any of its franchisees, over expansion, and loss of absolute control over the business. Drawbacks for the franchisees; and restrictive franchise agreements.

Identify the five main levels of corporate ownership and management

The five levels are; stockholders, board of directors, top management, middle management, and supervisory management.

What are the five main sections of a business plan?

The five sections are the executive summary, introducing, financial section, marketing section, and resumes of principals.

What are the three main causes of small-business failure?

The three main causes of small-business failure are management shortcomings, inadequate financing, and difficulty complying with government regulations.

What are the two key elements of the incorporation process?

The two key elements are where to incorporate and the corporate charter.

Why are small businesses good opportunities for women and minorities?

Women feel they can achieve more as small-business owners and can balance family and work more easily if they own their own firms. Minority businesss owners can receive special assistance from programs like the Mentor-Protege program provided by the SBA.