Chapter 6

Advantages of sole proprietorship

- Ease of formation - retention of control - pride of ownership - retention of profits - possible tax benefits

Advantages of Franchising

- Less risk - training and support - Brand recognition - easier to access to funding

Advantages of a Limited Liability Corporation (LLC)

- Limited Liability - Tax pass-through - Simplicity and flexibility in management and operation - flexible ownership

advantages of general partnerships

- ability to pool financial resources (investors) - ability to share responsibilities and capitals on complementary skills - ease of formation ( verbal agreement is allowed) - possible tax advantages (avoid potential double taxes)

Disadvantages of a Limited Liability Corporation (LLC)

- complexity of formation - annual franchise tax - foreign status in other states - limits on types of firms can for LLC (some states do not permit banks to operate as LLCs) - differences in state laws

Disadvantages of Franchising

- costs - lack of control - negative halo effect - growth challenge - restrictions on sale - poor execution

disadvantages of a Corporation

- expense and complexity of formation and operation - complications when operating in more than one state - double taxation or earning and other additional taxes - more paperwork, regulations and less secrecy - possible conflicts of interest

disadvantages of sole proprietorship

- limited financial resources - unlimited liability - limited ability attract and maintain talented employees (being able to pay high salaries) - heavy workload and responsibilities - lack of permanence (if something happens to the owner technically the company ceases to exist)

advantages of a Corporation

- limited liability - permanence - ease of transfer of ownership - ability to raise large amounts of financial capital - ability to make use of specialized management

disadvantages of general partnerships

- unlimited liabilities - potential for disagreements - lack of continuity - difficulty in withdrawing from a partnership

Merger

2 companies combine into one

Franchisor

Business that allows others to operate its business using resources it supplies in exchange for monetary or other considerations

Franchisee

Business that pays for the rights supplied by the franchisor

S Corporation

Corporation that avoids double taxation by having its income tax as if it were a partnership

Nonprofit Corporation

Corporation that doesn't seek to earn a profit

Statutory close corporation

Corporation with limited # of owners that operate under simpler rules than a C corporation

Business Format Franchise

Franchisor grants the right to both make and sell its good and service (ex. Wendy's, jiffy Lube)

Different types of mergers

Horizontal (combination of 2 firms that are in the same industry), Vertical (firms at different stages in production of a good or service) & Conglomerate (2 firms that are in unrelated industries)

Main difference between Limited Partnership and Limited Liability Partnership (LLP)

Limited Partners cannot actively participate in management and have protection of limited liability, where LLP allow all partners to take active roles in management and offer all partners limited liability

corporate bylaws

basic rules of governing how a corporation is organized and how it conducts its business

Corporation

business (and legal) entity that is separate and distinct from its owners. like an artificial person, not personally responsible for debts and obligation of the company

sole proprietorship

business that is owned and managed by a single individual. Most common business form (71%). 66% have less than $25,000 annual revenue.

Articles of incorporation

document filled with state government to establish the existence of a new corporation

General partnerships/partnerships

have the right to participate in the company's management and profits but also have unlimited liability for any debts the company incurs

Limited Liability Company (LLC)

hybrid of a partnership and corporation. Offers limited liability to its owners and flexible tax treatment.

board of directors

individuals who are elected by stockholders of a corporation to represent their interests (like e-board). establishes corporation's mission and sets broad objectives.

Franchise

licensing agreement under one party that allows another party to use its name, trademark, patents, copyrights, business methods and other property in exchange for money and other considerations

C Corporation

most common type of corporation which is a legal business entity that offers limited liability to all of its owners (stockholders)

stockholders

owners of corporations

Limited Partnership

partnership that includes at least one general partner and at least one limited partner

Distributor

type of franchise relationship which the franchisor makes a product and licenses the franchisee to sell it. (ex. automakers and dealerships to sell their cars)

Partnership

voluntary agreement under which 2 or more people act as co-owners of a business for profit. Larger and more profitable than sole proprietorships.

Divestiture

when a firm transfers total or partial ownership of some operations to investors or another company

Acquisition

when one firm buys the another firm