Chapter 5: How to form a business
a unique government creation that looks like a cooperation but is taxed like sole proprietorships and partnerships is
an S corporation
a key disadvantage of a general partnership is:
unlimited liability
if you are your own boss
you are responsible for paying your own wages/salary and for your own fringe benefits
sole proprietorships are the easiest kind of business to explore in your quest for an interesting career. -most will mention the benefits of being their own boss and setting their own hours. Other advantages include: being your own boss
you may make mistakes, but they are your mistakes - and so are the many small victories each day.
some disadvantages of S coperation
-s corporation that loses its S status may not operate under it again for at least 5 years -the tax structure of S corporations isn't attractive to all business -the benefits change every time the tax rules change
when 2 firms join together to form one new company, it is called an
merger
advantages of limited liability companies: :
-Limited liability -Choice of taxation -Flexible ownership rules -Flexible distribution of profits and losses -Operating flexibility
sole proprietorships are the easiest kind of business to explore in your quest for an interesting career. -most will mention the benefits of being their own boss and setting their own hours. Other advantages include:
-ease of starting and ending the business -being your own boss -pride of ownership -leaving a legacy -retention of company profits -no special taxes
the 3 major forms of business ownership are
-sole proprietorship -partnerships -coprations
General Partnership
All owners share in operating the business and in assuming liability for the business's debts.
a general partner
An owner (partner) who has unlimited liability and is active in managing the firm. -every partnership must at least one general partner
vertical merger
Joins two firms in different stages of RELATED businesses. -ex/ a merger between a soft drink company and an artificial sweetener
what form of ownership is non transferable because there is no stock?
LLC
a company similar to an S corporation but without the special eligibility requirements is an:
LLC ( limited liability company )
disadvantages of limited liability company ( LLC ): taxes
LLC members must pay self-employment taxes- the Medicare/social security taxes paid by sole proprietors and partnerships-on their profits. -in contrast , S corporations pay self employment tax on owners' salaries but not on the entire profits
disadvantages of limited liability company ( LLC ): no stock
LLC ownership is non transferable -LLC members need the approval of the other members in order to sell their interests in the company. -in contrast, regular and S corporation stockholders can sell their shares as they wish
disadvantages of limited liability company ( LLC ): limited life span
LLCs are required to identify dissolution dates in the articles of organization ( no more than 30 years in some states) -the death of a member can cause LLCs to dissolve automatically. Members may choose to reconstitute the LLC after it dissolves
a limited liability company (LLC) is simular to an
S corporation, but without the special eligibility requirements. -an LLC can submit a form to the IRS if it chooses to be treated as a corporation
advantages of franchises: franchising has penetrated every aspect of U.S. and global business life by offering products and services that are reliable, convenient, and competitively priced. other advantages: personal ownership
a franchise operation is still your business, and you enjoy as much of the incentives and profit as any sole proprietor would. -you are still your own boss, although you must follow more rules, regulations, and procedures than with your own privately owned business
some people find the best partner is
a spouse. -many husband-and-wife teams mange restaurants, service shops, and other businesses.
what makes franchising success in global markets is what makes it successful in the United states:
convenience and a prediacle level of service and quality.
related to coprate taxaations
double taxation occurs and stockholders pay income tax on the dividends they receive
LLCs have
limited life span and are required to identify dissolution dates in the articles of organization
______ liability means partners can lose everything they own if the business loses a lawsuit
unlimited
When any debts or damages incurred by the business are your debts or damages it is called
unlimited liability
sole proprietorships are the easiest kind of business to explore in your quest for an interesting career. -most will mention the benefits of being their own boss and setting their own hours. Other advantages include: ease of starting and ending the business
-all you have to do to start a sole proprietorship is buy or lease the needed equipment ( a saw, a laptop, a tractor ect.) and put up some announcements saying you are in business. -you may have to get a permit or license from the local government, but often that is no problem. - it is just as easy to get out of business; you simply stop. -there is no one to consult or disagree with about such decisions.
yet not all businesses can become S corporations -in order to qualify, a company must:
-have no more than 100 shareholders ( all family members count as one shareholder) -have shareholders that are individuals or estates, 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 ( rents, royalties, interest)
disadvantages of franchises: check out any franchise arrangement with present franchises and discuss the idea with an attorney and an accountant. Disadvantages of franchise includes:
-large start up costs -shred profit management regulation -coattail effects -restrictions on selling -fraudulent franchisors
advantages of franchises: franchising has penetrated every aspect of U.S. and global business life by offering products and services that are reliable, convenient, and competitively priced. other advantages:
-management and marketing assistance -personal ownership -nationally recognized name -financial advice and assistance -lower failure rate
the internet has changed franchising in many ways.
-most brick-and mortar franchises have expanded their business online and created virtual storefronts to deliver increased value to consumers. -however, many franchisors prohibit franchise-sponsored websites became conflicts can erupt if the franchisor creates its own website. -sometimes franchisors send "reverse royalties' to franchisees who believe their sales were hurt by the franchisor's online sales, but that doesn't always bring about peace. -before buying a franchise, read the small print regarding online sales
disadvantages of limited liability company ( LLC ):
-no stock -limited life span -fewer incentives -taxes -paperwork
rank the order in which members of a corporation are chosen in order to separate ownership from management. -Start at the top of the managerial hierarchy
-owners/stockholders elect board of directors -board of directors hire officers of the cooperation -officers hire managers of the corporation -managers hire employees
rank forms of business ownership based on ease of starting -put the easiest form at the top
-sole proprietorship -partnership -cooperation
how what is the average of businesses each year?
600,000
unlimited liability
Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else.
advantages of franchises: franchising has penetrated every aspect of U.S. and global business life by offering products and services that are reliable, convenient, and competitively priced. other advantages: management and marketing assistance
a franchisee usually has a much greater chance of succeeding because he or she has an established product to sell, help to choose a location, and assistance in all phases of promotion and operation -franchisors usually provide intensive training -some franchisors help their franchisees with local marketing efforts rather than having them depend solely on national advertising. -Franchises also have a network of fellow franchisees facing similar problems who can share their experiences
a limited partnership is specifically designed to help raise money
a limited partner invests money in the business but cannot legally have management responsibility and has limited liability.
some advantages of a corporation
ability to raise more money for investment and limited liability
one company's purchase of the property and obligations of another is called a
acquistation
Disadvantages of Sole Proprietorship: not everyone is equipped to own and manage a business. Often it is difficult to save enough money to start a business and keep it going. The costs of inventory, supplies, insurance, advertising, rent, computers, utilities, and so on may be too much to cover alone. There are other disadvantages: management difficulties
all businesses need management; someone must keep inventory, accounting, and tax records -sole proprietors often find it difficult to attract qualified employees to help run the business because often they cannot compete with the salary and benefits offered by larger companies
sole proprietorships are the easiest kind of business to explore in your quest for an interesting career. -most will mention the benefits of being their own boss and setting their own hours. Other advantages include: no special taxes
all the profits of sole proprietorship are taxed as the personal income of the owner, and the owner pays the normal income tax on that money. -however, owners do have to pay the self-employment tax ( for social security and Medicare) -they also have to esticame their taxes and make quarterly payments to the government or suffer penalties for nonpayment
limited partner
an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment
sole proprietorship and partnerships are relatively easy to form, but there are advantages to creating a business that is separate and distinct from its owners -that is a
cooperation
an agreement that gives a business the right to use a business's name and sell a product or service in a given area is a
franchise
_______ partners participate in operating the business while limited partners do not
general
a conventional (C) copration
is a state chartered legal entity with authority to act and have liability separate from its owners - its stockholders. -stockholders are not liable for the debts or other problems of the corporation beyond the money they invest in it by buying ownership shares, or stock, in the company. They don't have to worry about losing their house, car, or other property because of some business problem- significant benefit.
a franchise agreement
is an agreement whereby someone with a good idea for a business ( the franchisor) sells the rights to use the business name and sell product or service ( the franchise) to others ( the franchisees) in a given territory
large size may be a disadvantage to corporations because they
lose flexibility to respond to change
limited liability means
that the limited partners' liability for the debts of the business is limited to the amount they put into the company; their personal assets are not at risk
franchising today is truly a global effort
u.S. franchisors are counting their profits in euros, yan, pesos, won, krona, bahat, yen, and many other currencies.
advantages of franchises: franchising has penetrated every aspect of U.S. and global business life by offering products and services that are reliable, convenient, and competitively priced. other advantages: nationally recognized name
with an established franchise, you get instant recognition and support from a product group with established customers around the world
if you are a limited partner in an LLP, you can operate
without the fear that one of your partners might commit an act of malpractice resulting in a judgment that takes away your house, car, retirement plan, even your collection of vintage star wars action figures, as would be the case in a general partnership. -however in many states this personal protection does not extend to contract liabilities such as bank loans, leases, and business debt the partnership takes on ; loss of personal assets is still a risk if these are not paid. -in states witohut aidditonal contract liability protections for LLPs, the LLP is in many ways simular to an LLC
women arnt just franchisees anymore; they're becoming franchisors as well.
women are finding if they face difficulty getting financing for growing their businesses, turning to franchisees to help carry expansion costs can help ex/ Auntie Anne's
a corporation is formally formed with
articles of incorporation and bylaws
Advantages of partnerships: often it is much easier to own and manage a business with one or more partners. Your partner may be skilled at inventory control and accounting, while you do the selling or servicing. A partner can also provide additional money, support, and expertise, as well as cover for you when you are sick or on vacation. -other advantages : no special taxes
as with sole proprietorships, all profits of partnerships are taxed as the personal income of the owners, who pay the normal income tax on that money. -simaurly, partners must estimate their taxes and make quarterly payments or suffer penalties for nonpayment
a leveraged buyout is an
attempt by employees, management , or a group of investors to purchase an organization primarily through borrowing
advantages of corporations: perpetual life
because corporations are separate from those who won them, the death of one or more owners does not terminate the corporation
conflicts may be present if stockholders elect a
board of directors who disagree with management
reasons why size is an advantage of the cooperation
build modern facilities, acquire the latest equipment, and attract experts for hire
rather than merge or sell in another company, some corporation decides to maintain, or in some cases regain, control of a firm internally.
by taking a firm private management or a group of stockholders obtains all the firm's stock for themselves by buying it back from the other stockholders -petsmart and safeway are examples of firms that have been taken private
advantages of corporations: size
can raise large amounts of money to work with, big corporations can build modern factories or software development facilities with the latest equipment. -thye cna hir exports or specialist in all areas of operation -they can buy other corporations in different filed to diversify their business risks. -in short a large corporation with numerous resources can take advantage of op
An S-corporation
is a quique government creation that looks like a competition but is taxed like sole proprietorships and partnerships. -the paperwork and details of S corporations are similar to those of conventional (C) corporations. -S corporations have shareholders, directros, and employees, and the benefit of limited liability, but their profits are taxed only as the personal income of the shareholders-thus avoiding the double taxation of C corporations
suppose employees believe they may lose their jobs, or mangers believe they could improve corporation performance if they owned the company -leveraged buyout ( LBO)
is an attempt by employees, management, or a group of private investors to buy out the stockholders in a company, primarily by borrowing the necessary funds. -the employees, managers, or investors now become the owners of the firm.
the number of an S corporation's shareholders
is limited to no more than 100
an acquisition
is one company's purchase of the property and obligations of another company -like buying a house
cooperative (co-op)
is owned and controlled by the people who use it- producers, consumers, or workers with simular needs who pool their resources for mutual gain.
limited liability
is responsibility only up to the amount of money invested in the firm
a merger
is the result of 2 firms joining to form one company. -like a marriage
one advantage of a partnership is that
it is easier to raise money
advantages of corporations: ease of ownership change
it is easy to change the owners of a corporation -all that is necessary is to sell the stock to someone else
Advantages of partnerships: often it is much easier to own and manage a business with one or more partners. Your partner may be skilled at inventory control and accounting, while you do the selling or servicing. A partner can also provide additional money, support, and expertise, as well as cover for you when you are sick or on vacation. -other advantages : shared managment and pooled/complemnetary skills and knowledge
it is simply mcuh easier to maange the day-to-day activites of a busniness with carefully cohosen partners -partenres give each other free time from the business and provide different skills and persepctives
it is easy to start and end a sole proprietorship because
it may only require a simple permit or license to start and only one person is involved in the decision to dissolve the business
some people, uncomfortable with the idea of starting their own business from strict, would rather
join a business with a proven track record through a franchise agreement.
horizontal merger
joins two firms in the SAME industry and allows them to diversify or expand their products ex/ a soft drink company and a mineral water company that merge can now supply a variety of beverage products
disadvantages of corporations: extensive paperwork
the paperwork needed to start a corporation is just the beginning -a sole proprietor or partnership may keep rather broad accounting records. A corporation, in contrast, must keep detailed financial records, the minutes of minutes, and more.
franchisors often use technology, including social media, to extend
their businesses. -franchises have brick and mortar locations to serve walk in customers, but they also are provided leads from the company's main website. -all franchises are kept up to date daily on company news via email, and they use a chat room to discuss issues and product ideas with each other.
Disadvantages of Sole Proprietorship: not everyone is equipped to own and manage a business. Often it is difficult to save enough money to start a business and keep it going. The costs of inventory, supplies, insurance, advertising, rent, computers, utilities, and so on may be too much to cover alone. There are other disadvantages:
-unlimited liability -the risk of personal losses. -limited financial resources -management difficulties -overwhelming time commitment -few fringe benefits -limited growth -limited life span
corporate hierarchy
1- owners/stockholders ( elect board of directors) 2-board of directors ( hire officers) 3- officers ( set corporate objectives and select managers) 4-managers ( supervise employees ) 5-employees
advantages of limited liability companies: choice of taxation
LLCs can choose to be taxed as partnerships or as corporations. -partnership-level taxation was previously a benefit normally reserved for partners or S corporation owners
advantages of limited liability companies: operating flexibility
LLCs do have to submit articles of organization, which are simular to articles of incorporation, but they are not required to keep minutes, file written resolutions, or hold annual meetings. -an LLC also submits a written operating agreement, simular to a partnership agreement, describing how the company is to be operated.
advantages of limited liability companies: flexible ownership rules
LLCs do not have to comply with ownership restrictions as S corporations do. -owners can be a person, partnership, or corporation.
corperation
a legal entity with the authority to act and have liability apart from its owners. -the almost 5 million corporations in the U.S. make up 20 percent of all businesses, but they earn 81 percent of total U.S. business receipts.
reasons a business might change ownership form
adding a partner to the firm, dropping a partner from the firm and seeking limited liability
today over 20% percent of franchises are owned by
african americans, latinos, asians, and native americans
disadvantages of corporations: two tax returns
an individual who incorporates must file both a corporate tax return and an individual tax return -depending on the size of the corporation, a corporate return can be quite complex and require the assistance of a certified public accountant ( CPA)
franchisors are finding it surprisingly easier now to move into
china, south africa, the philippines, and the middle east.
disadvantages of corporations: possible conflicts with stockholders and board of directors
conflict may brew if the stockholders elect a board of directors who disagree with management. -since the board of directors choose the company's officers, entrepreneurs serving as managers can find themselves forced out of the very company they founded
the joining of firm in completely unrelated industries is
conglomerate merger
when producers, consumers, or workers with simular needs pool their resources for mutual gain ,they start
cooperate
a state-chartered legal entity with authority to act and have liability separate from its owners is a
cooperation
some people dislike the notion of owners, managers, workers, and buyers being seperate individuals with seperate goals, so they formed
cooperatives, a different kind of organization to meet their needs for electricity, child care, housing, health care, food, and financial services
disadvantages of corporations: double taxation
corporate income is taxed twice -first the corporation pays tax on its income before it can distribute any, as dividends, to stockholders. -then the stockholders pay income tax on the dividends they receive. -states often tax corporations more heavily then other enterprises, and some special taxes apply only to corporations
advantages of corporations: separation of ownership from management
corporations are able to raise money form many different owners/stockholders without getting them involved. -the corporate hierarchy shows how the owners/stockholders are separate from the managers and employees. The owners/stockholders elect a board of directors who are the officers of the corporation and oversee major policy issues. The owners/stockholders thus have some say in who runs the corporation but have no real control over the daily operations
advantages of corporations: ease of attracting talented emplyees
corporations can attract skilled employees by offering such benefits as stock options ( the right to purchase shares of the corporation for a fixed price)
many companies start out in one form, then add ( or drop) a partner or two, and eventually become
corporations, limited liability companies, or franchisors
some disadvantages of a corporation
cost of forming a corporation and double taxation
most people are not willing to risk everything to go into business. Yet for a business to grow, prosper, and create economic opportunity, many people have to be willing to invent money in it. -one way to solve this problem is to
create an artificial being, an entity that exists only in the eyes of the law- a corporation
it is important to have articles of partnership because problems between partners may occur due to
disagreements over dividing profits
Disadvantages of partnerships: anytime two people must agree, conflict, and tension are possible. Partnerships have caused splits between relatives, friends, and spouses.Other disadvantages are: disagreement among partners
disagreements over money are just one example of potential conflict in a partnership - all terms of the partnership should be spelled out in writing to protect all parties and minimize misunderstanding such as the model business corporation act.
sharing risk means sharing rewards in a partnership. A partner expects to be rewarded for putting time and money into a firm through:
division of profits
the advantages of farm cooperatives for their members is that they:
do not pay taxes as corporations do and increase economic power
Disadvantages of partnerships: anytime two people must agree, conflict, and tension are possible. Partnerships have caused splits between relatives, friends, and spouses.Other disadvantages are: unlimited liability
each general partner is liable for the debts of the firm, no matter who was responsible for causing them. You are liable for your partners mistakes as well as your own. -like sole proprietors, general partners can lose their homes, cars, and everything else they owned if the business loses a lawsuit or goes bankrupt
worldwide, more than 1 billion people are members of cooperatives -members denotationally control these businesses by.
electing a board of directors that hires professional management -some co-ops aks consumer-members to work for number of hours a month as part of their membership duties.
Disadvantages of Sole Proprietorship: not everyone is equipped to own and manage a business. Often it is difficult to save enough money to start a business and keep it going. The costs of inventory, supplies, insurance, advertising, rent, computers, utilities, and so on may be too much to cover alone. There are other disadvantages: limited growth
expansion is often slow since a sole proprietorship relies on its owner for most of its creativity, business know-how, and funding
in addition to the 3 basic forms of business ownership, there are 2 special forms
f
another kind of cooperative in the U.S. is formed to give members more economic power as a group than they have as individual -best example would be
farm cooperative.
mergers between large competitors must prove to the
federal trade commission that the new combined company does not limited competition unfairly
home-based businesses offer many obvious advantages including relief from the stress of commuting, extra time for family activities, and low overhead expenses. -one disadvantage is the
feeling of isolation -compared to home-based entrepreneurs, home-based franchises feel less isolated -experienced franchisors often share their knowledge of building a profitable enterprise with other franchisees.
advantages of the LLC form of organization
flexible ownership rules, choice of taxation, and limited liability
today business acquisitions are not limited to U.S. buyers
foreign companies have found the fastest way to grow is often to buy an established operation that can enhance their technology or expand the number of brands they offer
master limited partnerships are normally
found in the oil and gas industry
Franchises can begin to feel burdened if the
franchisor creates too many mangerical orders, directives, orl limitations
Disadvantages of Sole Proprietorship: not everyone is equipped to own and manage a business. Often it is difficult to save enough money to start a business and keep it going. The costs of inventory, supplies, insurance, advertising, rent, computers, utilities, and so on may be too much to cover alone. There are other disadvantages: limited financial resources
funds available to the business are limited to what they one owner can gather. Since there are serious limits to how much money one person can raise, partnerships, and corporations have a greater probability of obtaining the financial backing needed to start and eqip a business and keep it going
most popular business for franchising
gas stations with convenience stores, full service restaurants, and fast food restaurants
limited partnership
has one or more general partners and one or more limited partners
long hours and a feeling of isolation are two disadvantages of
home-based franchises
relief from the stress of commuting, extra time for family activities, and low overhead expenses are all advantages of
home-based franchises
a merger of 2 firms in the same industry that allows the companies to diversify or expand their products is
horizontal merger
the joining of two firms in the same industry is a
horizontal merger
when a soft drink company and a mineral water company merge and then are able to supply a variety of drinking products they have found a
horizontal merger
jane wants to start a new subway franchise in her town, in the initial stage of investigating, jane must consider which of the following
how to terminate the franchise, how much capital is needed to purchase the franchise, and the financial strength of the franchisor
Disadvantages of Sole Proprietorship: not everyone is equipped to own and manage a business. Often it is difficult to save enough money to start a business and keep it going. The costs of inventory, supplies, insurance, advertising, rent, computers, utilities, and so on may be too much to cover alone. There are other disadvantages: limited life span
if the sole proprietor dies, is incapacitated, or retires, the business no longer exists ( unless it is sold or taken over by the sole proprietor's heirs)
Disadvantages of Sole Proprietorship: not everyone is equipped to own and manage a business. Often it is difficult to save enough money to start a business and keep it going. The costs of inventory, supplies, insurance, advertising, rent, computers, utilities, and so on may be too much to cover alone. There are other disadvantages: few fringe benefits
if you are your own boss, you lose the fringe benefits that often come with working for others. -you have no paid health insurance, no paid disability insurance, no pension plan, no sick leave, and no vacation pay.
double taxation of a cooperation occurs because the company pays tax on
income, and then individual shareholders pay income tax on the dividends they receive
andy is the owner of action auto which was formed as a sole proprietorship. He would like to eliminate the risk of personal liability for the company debt. -what is Andy's best course of action?
incorporate
disadvantages of corporations: initial cost
incorporation may cost thousands of dollars and require lawyers and accountants -there are less costly ways of incorporating in certain states but many people do not have the time or confidence to go through this procedure without the help of a potentially expensive lawyer
disadvantages of corporations:
initial cost, extensive paperwork, double taxations, two tax returns, size, the difficulty of termination, and possible conflict with stockholders and board of directors.
a limited liability partnerships limits the liability of limited partners to their :
initial investment
minority-owned business increased by 39% between 2007 and 2012, or more than 3 times faster than minority population growth. Franchisors are becoming more focused on recruiting minority franchises. -DiversityFran is an
initiative by the international franchise associations to build awareness
an corporation
is a chartered legal entity with authority to act and have liability separate from its owners
LLCs do have to submit articles of organization and an operating agreement, but do not have to:
keep minutes, hold annual meetings, and file written resolutions
disadvantages of corporations: size
large corporations sometimes become too inflexible and tied down in red tape to respond quickly to market changes, and their profitability can suffer
when a sole proprietor leaves an ongoing business to future generations, it is said that the owner is leaving a
legacy
a corporation is a
legal entity with authority to act and have liability separate from its owners
a partnership is a
legal form of business with toe or more owners -there are several types: general partnerships, limited partnerships, and master limited partnerships
in a general partnership, all partners share the responsibility for operating the business and assume
liability for the business's debts
the responsibility for a loss only up to the amount invested is
limited liability
normally, individuals who incorporate do not issue stock to outsiders therefore, they do not share all the advantages and disadvantages of large corporation ( such as size, and more money for investment) Their major advantages are
limited liability and possible tax benefits -although you are not required to file for incorporation through a lawyer, it is usually wise to consult one. -like the feem the length of time it will take to actually have your own business incorporation will vary state by state
the form of partnership that limits liability to the limited partner's own acts or those the people they supervise is a :
limited liability partnership
advantages of corporations:
limited liability, ability to raise more money for investment, size, perpetua life, ease of attracting talented employees, and separation of ownership from management
The main types of partnerships are:
limited, general, and master limited
another type of partnership was created to limit the disadvantage of unlimited liability, - a limied liabilty partnerships ( LLP)
limits partners' risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision.
sole proprietors think of their business as a way of life because
long hours affect their family life and they often work more hours than nonsupervisory employees
one form of partnership, the master limited partnership ( MLP)
looks much like a corporation in that it acts like a corporation and is traded on the stock exchanges like a corporation, but is taxed like a partnership and this avoids the corporate income tax.
disadvantages of franchises: check out any franchise arrangement with present franchises and discuss the idea with an attorney and an accountant. Disadvantages of the franchise include: management regulation
management "assistance" has a way of becoming managerial orders, directives, and limitations -franchisees feeling burdened by the company's rule and regulation may ose the drive to run their own business. -other franchisees will band together to resolve their grievances with franchisors rather than fighting their battles alone.
some disadvantages of operating a franchise
managmental regulation, shared profit, and large start-up costs
the ________ limited partnership looks much like a corporation in that it acts like a cooperation and is traded on the stock exchange.
master
advantages of corporations: limited liability
means that the owners of a business are repressible for its losses only up to the amount they invest in it
_____ owned businesses are growing at more than the national rate
miniority
Advantages of partnerships: often it is much easier to own and manage a business with one or more partners. Your partner may be skilled at inventory control and accounting, while you do the selling or servicing. A partner can also provide additional money, support, and expertise, as well as cover for you when you are sick or on vacation. -other advantages :
more financial resources, shared management and pooled/complementary skills and knowledge, longer survival and no special taxes.
disadvantages of franchises: check out any franchise arrangement with present franchises and discuss the idea with an attorney and an accountant. Disadvantages of franchise includes: large start up costs
most franchises demand a fee for the rights to the franchise
disadvantages of franchises: check out any franchise arrangement with present franchises and discuss the idea with an attorney and an accountant. Disadvantages of the franchise include: fraudulent franchisors
most franchisors are not a large system, many are small rather obscure companies that prospective franchisees may know little about -most are honest, but complaints to the Federal trade commission have increased about franchises that delivered little or nothing of what they promised. -before you buy a franchise, make certain you check out the facts fully and remember the old adage " you get what you pay for"
because of its proximity and shared language canada is the
most popular target for U.S. based franchises.
its not just large franchises going globally. but so are
newer smaller franchises as well are going global
disadvantages of corporations: difficulty of termination
once a corporation has started, its relatively hard to end
Disadvantages of partnerships: anytime two people must agree, conflict, and tension are possible. Partnerships have caused splits between relatives, friends, and spouses.Other disadvantages are: difficulty of termination
once you've committed yourself to a partnership, it is not easy to get out of it. -it is best to decide such questions up front in the partnership agreement
many people do not like working for someone, so being your
own boss is an advantage of sole proprietorships
sole proprietorships are the easiest kind of business to explore in your quest for an interesting career. -most will mention the benefits of being their own boss and setting their own hours. Other advantages include: leaving a legacy
owners can leave an ongoing business for future generations
sole proprietorships are the easiest kind of business to explore in your quest for an interesting career. -most will mention the benefits of being their own boss and setting their own hours. Other advantages include: retention of company profits
owners not only keep the profits earned but also benefit from the increasing value as the business grows
LLP deals with liability for partners
partners are not held liable for each others' actions, liability is limited to losing only personal assets directly related to personal acts, and when a partner is used individuals for malpractice, it does not affect other partners
a legal form of business with 2 or more owners is a
partnership
termination of a partnership is difficult without a
partnership agreement
Advantages of partnerships: often it is much easier to own and manage a business with one or more partners. Your partner may be skilled at inventory control and accounting, while you do the selling or servicing. A partner can also provide additional money, support, and expertise, as well as cover for you when you are sick or on vacation. -other advantages: longer survival
partnerships are more likely to succeed than solepriertorships because being watched by a partner can help a business person become more disciplined
a disadvantage of buying a franchise is
paying a share of profits as royalties
sole proprietorships are the easiest kind of business to explore in your quest for an interesting career. -most will mention the benefits of being their own boss and setting their own hours. Other advantages include: pride of ownership
people who own and manage their own businesses are rightfully proud of their work. They deserve all the credit for taking the risks and providing needed goods or services.
advantages of limited liability companies: : limited liability
personal assets are protected. -limited liability was previously available only to limied partners and shareholders of corporations -Limited liability is where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership. If a company with limited liability is sued, then the claimants are suing the company, not its owners or investors.
the partnership business entity is not taxed, because each partner pays tax on the business's profit as their
personal income
advantages of the partnership form of business
pooled skills, longer survival, and more financial resources
advantages of limited liability companies: flexible distribution of profits and losses
profits and losses don't have to be distributed in proportion to the money each person invests, as in corporations. -LLC members agree on the percentage to be distributed to each member.
minority-owned business increased by 39% between 2007 and 2012, or more than 3 times faster than minority population growth. Franchisors are becoming more focused on recruiting minority franchises. -the U>S. commerce department's federal minority business development agency
provides aspiring minority business owners with training in how to run franchises. -some franchisors also encourage minority franchise ownership
today potential franchises can make a choice between starting an online business or a business requiring an office or storefront outside the home
quite often the decision comes down to financing -traditional brick and mortar franchises require finding real estate and often require a high franchise fee. -Franchises pay only a set monthly fee. Online franchises also do not set exclusive territories limiting where the franchise can complete. -an online franchise can literally compete against the world
the most popular businesses for franchising are
restaurants ( fast food and full service ) and gas stations with convenience stores -retail stores, financial services, health clubs, hotels and motels, and automotive parts and service centers are also popular franchised businesses
the miracle of free enterprise is that the freedom and incentives of capitalism make
risks acceptable to many people who go on to create the great corporations of america ex/ sam walton ( walmart )
since buying a franchise is a major investment be sure to check out a company's financial strength before you get involved. -watch out for scams too
scams called bust-outs usually involve people coming to town, renting nice offices, taking out aids, and persuading people to invest. then they dissapear with the investors' money
some disadvantages of an LLC
self-employed taxes and more paperwork than sole proprietors
a corporation not only limits the liability of owners but often enables many people to
share in the ownership ( and profits) of a business without working there or having other commitments to it -corporations may choose whether to offer ownership to outside investors or remain privately held
a corporation can sell
shares to anyone who is interested to raise more money for investment
a key benefit that only corporations can offer to attract skilled employees is
stock options ( the right to purchase shares of the corporation for a fixed price)
Disadvantages of partnerships: anytime two people must agree, conflict, and tension are possible. Partnerships have caused splits between relatives, friends, and spouses.Other disadvantages are: division of profits
sharing risk means sharing profits, and that can cause conflicts. -there is no set system for dividing profits in a partnership, and they are not always divided evenly.
the various responsibilities of each partner, especially any issues involving money
should be agreed to in discussion and put in writing before agreeing to a partnership
the owner of a sole proprietorship needs to pay social security and medicate, which are
slef-emplyment taxes
a business owned, and usually managed, by one person is called a
sole proprietorship
a business that is owned and managed by one person is a
sole proprietorship
3 major forms of business are:
sole proprietorship, partnership, cooperation
a franchise can be formed as a
sole proprietorship. partnership, or corporation
ease of formation is an advantage of
sole proprietorships
cooperatives are still a major force in agriculture and other industries today
some top co-ops have familiar names such as Land O lakes, sunkist, Ace hardware, ocean spray ect.
the attribute of a corporation
state chartered, liably separate from owners, and legal entity
an advantage of partnerships is a longer
survival rate than sole proprietorships, because they became more disciplined and the business's life is based on all the partners
attributes of a master limited partnership ( MLP)
taxed like a partnership, acts like a corporation , and traded on the stock exchange.
cooperatives have an advantage in the marketplace because they do not pay the same kind of
taxes corporations do.
gathering leads on a company website, selling products and keeping up to date on new via email, annd chat rooms all serve as examples of using
technology to assist franchises and customers
all states except Lousiana have adopted the Uniform partnership act ( UPA) to replace earlier laws governing partnerships.
the UPA defines the 3 key elements of any general partnership as common ownership, shared profits and losses, and the right to participate in managing the operations of the business.
disadvantages of franchises: check out any franchise arrangement with present franchises and discuss the idea with an attorney and an accountant. Disadvantages of franchise includes: coattial effect
the actions of other franchises have an impact on your future growth and profitability. -due to this coattail effect, you could be forced out of business even if your particular franchise has been profitable
because of the poor publicly at a fellow franchise location, you notice that sales at your location have decreased. -the impact of the poor publicly on your company is referred to as:
the coattail effect
advantages of franchises: franchising has penetrated every aspect of U.S. and global business life by offering products and services that are reliable, convenient, and competitively priced. other advantages: lower failure rate
the failure rate for franchises has been lower than that of other business ventures -but franchising has grown so rapidly that many weka franchises have entered the field, so you need to be careful and invest wisely.
one fear of owning your own business or having a partner is
the fearing of losing everything you own if someone sues the business or it loses a lot on many -many businesspeople try to avoid this and the other disadvantages of sole propertieships and partnerships by forming a CORPORATION
disadvantages of franchises: check out any franchise arrangement with present franchises and discuss the idea with an attorney and an accountant. Disadvantages of franchise includes: shared profit
the franchisor often demands either a large share of the profits in addition to the start up fees or a percentage commision based on sales, not profit. -this share is called a royalty
attributes that make the initial cost of incorporating a disadvantage
the high cost of hiring lawyers and accountants for the complex things needs and hgi start up costs associated with documentation
a sole proprietorship often grows slowly because the owner is:
the main source of know-how, the major source of funding, and the main source of creativity
cooperatives have an advantage in the market place because
they don't pay the same kind of taxes corporations pay
if the sole proprietor died, is incapacitated or retires, the business no longer exists.
this disadvantage of a sole proertieship is called limited life span
Disadvantages of Sole Proprietorship: not everyone is equipped to own and manage a business. Often it is difficult to save enough money to start a business and keep it going. The costs of inventory, supplies, insurance, advertising, rent, computers, utilities, and so on may be too much to cover alone. There are other disadvantages: overwhelming time commitment
through sole proprietors say that they set their own hours, it's hard to own a business, manage it, train people, and have there time for anything else in their life when there is no one with who, to share the burden -many sole proprietors will tell you, "its not a job, it's not a career, its a way of life."
it is very important to develop a partnership agreement or contract
to protect your rights and set out each partners' possibilities
advantages of corporations: ability to riase more money for investment
to raise money, a corporation can sell shares of its stock to anyone who is interested -this means that million of people can own part of major companies like IBM, Apple, and Coca-cola, and smaller corporations as well. -corporations can also borrow money by obtaining loans from financial institutions like banks -they can also borrow from individual investors by issuing bonds, which involves paying investors interest until the bonds are repaid sometimes in the future
funds available to a business are limited
to what one owner can gather which is a disadvantage to the form of business known as sole proprietorship
home-based franchises can be started for as little as $2,000.
today you can be a franchise in areas ranging from cleaning services to tax preparation, child care, pet care, or cruise planning. -but make sure you are prepared and ready. and check out the franchisor carefully.
not all corporations are large organizations with hundreds of employees and thousands of stockholders
truckers, doctors, lawyers, plumbs, athletics, and small-business owners of all kinds can also incoperate.
advantages of franchises: franchising has penetrated every aspect of U.S. and global business life by offering products and services that are reliable, convenient, and competitively priced. other advantages: financial advice and assistance
two major problems for small business owners are arranging financing and learning to keep good records, -franchisees often get valuable assistance and periodic advice for people with expertise in these areas
elements such as common ownership, shared management, and shared profits are losses are those used to define the:
uniform partnership act
conglomerate merger
unites firms in completely UNRELATED industries in order to diversify business operations and investments ex/ a soft drink company and a snack good company
disadvantages of limited liability company ( LLC ): fewer incentives
unlike corporations, LLCs cannot deduct the cost of fringe benefits for members owning 2 percent or more of the company. -and since there's no stock, they cant use stock options as incentives to employees
disadvantages of franchises: check out any franchise arrangement with present franchises and discuss the idea with an attorney and an accountant. Disadvantages of franchise includes: restrictions on selling
unlike owners of private businesses, who can sell their companies to whomever they choose on their own terms, many franchisees face restrictions on the resale of their franchises. -to control quality, franchisors often insist on approving the new owner, who must meet their standards
if your company debts or damages are solely your responsibility you could be experiencing the disadvantage associated with owning a sole proprietorship called
unlimited liability
the responsibility of the owner of a sole proprietorship for all of the debts of the business is
unlimited liability
disadvantages of a sole proprietorship
unlimited liability and limited financial resources
Disadvantages of partnerships: anytime two people must agree, conflict, and tension are possible. Partnerships have caused splits between relatives, friends, and spouses. Other disadvantages are:
unlimited liability, division of profits, disagreements among partners, and difficulty of termination.
a merger between a soft drink company and an artificial sweetener maker could be considered a
vertical merger
there are 3 major types of corporate mergers:
vertical, horizontal, and conglomerate
Advantages of partnerships: often it is much easier to own and manage a business with one or more partners. Your partner may be skilled at inventory control and accounting, while you do the selling or servicing. A partner can also provide additional money, support, and expertise, as well as cover for you when you are sick or on vacation. -other advantages: more financial resources
when two or more people pool their money and credit, it is easier to pay the rent, utilities, and other bills incurred by ab usines. -a limited partnership is specially designed to help raise money
Disadvantages of Sole Proprietorship: not everyone is equipped to own and manage a business. Often it is difficult to save enough money to start a business and keep it going. The costs of inventory, supplies, insurance, advertising, rent, computers, utilities, and so on may be too much to cover alone. There are other disadvantages: unlimited liability-the risk of personal losses
when you work for others, it is their problem if the business is not profitable. -when you own your own business, you and the business are considered one. You have unlimited liability; that is any debts or damages incurred by the business are your debts and you must pay them, even if it means selling your home, your car, or whatever else you won. This is a serious risk, and understanding it requires not only thought but also discussion with a lawyer, an insurance agent, an accountant, and others.
LLCs can be taxed as partnerships or as corporations
which allows the business owners to choose their method of taxation
disadvantages of limited liability company ( LLC ): paperwork
while the paperwork required of LLCs is not as great as that required of corporations, it is more than required of sole proprietors.
a lingering issue in franchsiing is the number of women who won franchises.
while women own about half of all u.S. companies and are opening businesses at double the rate of men, their ownership of franchises is only about 21%. -however that statistic does not tell the whole story; 45% of franchises are co-owned by male and female partners.
franchisors though must be careful and do their homework before entering into global franchise agreements. -3 questions to ask before forming a global franchise are:
will your intellectual property be protected? Can you give proper support to global partners? Are you able to adopt to franchise regulations in other countries? if the answer is yes to all 3 questions, global franchising creates great opportunities. -it is also important to remember that adapting products and brand names to different countries create challenges.
