Entrepreneurship Test 3

Standard contracts

company can just fill in the blanks as needed

Specialty contracts

unique contract terms, large dollar amounts at stake

Design patent

A 14-year patent for a new, original, and ornamental design for an article of manufacture.

Utility patent

A 20-year patent covering a process, machine, article of manufacture, composition of matter, or any new or useful improvement of an existing one.

Hourly fees

A basis for legal charges in which the rate is based on a price per hour. Often lawyers will charge for fractions of an hour

Property

A general term for real estate, but it can also be applied as a legal term for anything owned or possessed

Check the box taxation

A choice LLCs can make on their tax returns to be taxed as a corporation or a partnership

Articles of partnership

Agreement between the partners of a firm on matters pertaining to the formation and operation of the partnership

Joint venture

An agreement between two or more entities to pool resources in order to complete a project

Safety stock

An amount of inventory carried to ensure that you will not run out of inventory because of fluctuating levels of sales

Tax management

An estate planning strategy which focuses on minimizing estate tax payments.

Employee referral

An underused, low-cost method for finding workers that rewards your employees for recommending potential candidates that would be a great employee fit.

Fidelity bonds

Bonds that repay employers for losses caused by dishonest or negligent employees also called dishonesty bonds

Word of Mouth

Discounts, Local signage, Facebook, Cooperative advertising

Contingency fee

Fee paid by a client to an attorney for legal services that is dependent upon the outcome of a case

Payback period

The amount of time it takes a business to earn back the funds it paid out to obtain a capital asset

Microinventory

The purchase of inventory only after a sale is made; very typical with Internet firms

Liability of newness

The set of risks faced by firms early in their life cycles that comes from a lack of knowledge by the owners about the business they are in and by customers about the new business.

Whole of life costs

The sum of all costs of capital assets, including acquisition, ownership, operation, and disposal

LLC

This business form is still relatively new. Limited liability feature. Allows more investors. Allows other corporations to hold stock. May have as few as one "member". Flexible profits. Owners avoid double taxation. Cost of formation is low. Some states apply limits

Slack resources

Time off from work, a slower pace at work, or hiring additional personnel to take on more of the tasks of the owner are all ways that profits can be used to make the owner's life easier. Used that way, the extra profits are called slack resources by economists, because they can be rechanneled into the business if needed.

Diversify

To invest in multiple investments of differing risk profiles for the purpose of reducing overall investment risk

Quality

a product's or service's fitness for use, measured as durability, reliability, serviceability, style, ease of use, and dependability

Contracts

agreements in which the parties exchange promises

Probationary period

trial period in which an employee has temporary status before a formal offer to work full time is presented

Right amount of inventory is determined by?

Cost of processing an order Cost of keeping merchandise in inventory Cost of lost sales if you run out Time it takes to receive inventory after it's ordered

Job description

Defines and discusses all the essential knowledge, skills, and abilities that are needed to fill a position.

Subchapter S Disadvantages

Formation process is cumbersome and expensive. Limited shareholder numbers. Currently limited to 75. Significant limitation for a company that wishes to go public

Off-the-job

Includes lectures, special study, videos, television conferences, case studies, role-playing, simulation, programmed instruction, and laboratory training

Equipment

Machinery, tools, or materials used in the performance of the work of the business

Waiver

Part of a contract in which a party intentionally gives up legal rights or claims

Publicity

Press releases, Public speaking, Donate your product or service

Intellectual property

Property coming from some sort of original thought; for example, patents, trade secrets, trademarks, and copyrights.

Harvest

Recover value through a sale of a firm or its assets.

Success profits

Returns at levels higher than the entrepreneur could make working for others.

Substitution profits

Returns intended to equal and replace the salary or wages the entrepreneur could draw working for someone else.

Factoring

Selling the rights to collect accounts receivable to an entity outside your business (typically receive 75-80% of collectable amount).

Infringer

Someone who uses intellectual property without the permission of the owner.

Insurable value

The amount of an asset for which a company will write an insurance policy

Bootstrapping

Using funds generated by business operations to capitalize growth

Plant patent

A 20-year patent that covers new strains of living plant organisms, algae, or macro fungi.

Legal entity

A being, human or nonhuman, such as a corporation, that is recognized as having rights and duties, such as the right to own property

Sole proprietorship

A business owned by a single individual who is responsible for all debts and claims against the business

Credit reporting agency

A business that collects, collates, and reports information concerning an entity's use of debt

Return on investment (ROI)

A capital budgeting equation used to measure the relationship between initial investment and the profits that are expected to be received from making the investment

Subcontract

A contract by which a new party agrees to perform a duty that one of the original parties to a contract was already legally obligated to perform.

Physical inventory

A count of all the inventory being held for sale at a specific point in time

Debt

A legal obligation to pay money in the future

Meritocracy

A management philosophy of selecting and promoting people based solely on their being the most capable person for the job.

Financial leverage

A measure of the amount of debt relative to total investment

Flat fees

A method of billing for lawyers in which a fixed amount is paid for a certain task

Internal control

A set of rules and procedures that work to limit the opportunity for employee theft or malfeasance

Economic order quantity (EOQ)

A statistical technique that determines the quantity of inventory that a business must hold to minimize total inventory cost

Accounts receivable

money that is owed to your business by your customers Relatively few small businesses today provide credit to customers

Employee fit

the match between the needs, expectations, and culture of the small business with the expectations and the skills of the individual employee

Arbitration

A dispute resolution process held instead of court cases in which both sides present their case to a legal professional

Retainer

A fee paid by a client to an attorney to engage the attorney's services

Workout

A form of business termination in which the firm's legal or financial obligations are not fully met at closing.

Litigation

A formal dispute resolution method that operates using the court system, typically with a lawyer representing each party

Employee stock ownership plan

A formalized legal method to transfer some or all of the ownership of a business to its employees.

Plant

A general term for the facilities of a business

Patent

A grant by the U.S. government to an inventor for an idea that is new, useful, and non-obvious, giving the inventor the exclusive right to make, use, or sell his idea

Capital lease

A lease in which at the end of the lease period the asset becomes the property of the lessee, possibly with an additional payment

Corporation

A legal "artificial" entity that is formed by filing specific documents with a state government

Tax abatement

A legal reduction in taxes by a government

Consolidation

A transfer method in which a small business is bought by a larger firm for the purpose of quickly growing the larger firm.

Separation of duties

A type of internal control that separates the physical control of an asset from the person accounting for that asset

Hold harmless

A type of waiver in which a party agrees not to hold another party responsible for certain events

Deductible

An amount of loss that will not be paid by an insurance company

Transfer

An endgame strategy in which ownership is moved from one person or group to another.

Termination

An endgame strategy in which the owner closes down a business

Liquidity enhancement

An estate planning strategy which focuses on generating cash to cover likely estate taxes.

Estate freeze

An estate planning strategy which focuses on transferring assets to heirs when the asset costs are low.

Bankruptcy

An extreme form of business termination which uses a legal method for closing a business and paying off creditors when debts are substantially greater than assets.

Foundation

An institution to which private wealth is contributed and from which private wealth is distributed for public purposes

Inventory valuation

Determination of the amount of assets held by the firm for sale or production

Tax credits

Direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria

Trademark

Distinctive word, slogan, or image that identifies a product and its origin.

Articles of organization

Document setting forth information about a limited liability company that is filed with the state to establish an LLC

Pass through (taxation)

Earnings of the business are distributed to the business owners and those owners pay individual tax on the earnings

Single taxation

Earnings of the business are taxed once with the owners paying the taxes

Double taxation

Earnings of the business are taxed twice with the business as well as its owners being subject to tax

Key employees

Employees whose experience and skills are critical to the success of a business Loss of key employees is a particularly acute risk for small businesses

Copyright

Exclusive right given to the creator of a literary or artistic work to make use of that work.

Assumed name filing or a fictitious name filing

Filing made with a state(s) in which the business operates disclosing the trade name or assumed name of the business along with the owners of the business

Bar coding

Obtaining a Universal Product Code number and scan-ready visual tag, and printing it on the product or its packaging. Bar codes can then be scanned and recognized by others

Subchapter S Advantages

Owner's limited liability. Potential tax benefit. Relatively easy formation. Compared to the Subchapter C. Legitimacy in the market

Advantages

Owners report profit or losses on their personal income tax. Some business expenses may be claimed. Easy to establish and easy to dissolve

Exculpatory clause

Part of a contract in which a party to the contract states that he or she will not be responsible for certain actions.

Noncompete clause

Part of a contract in which a person agrees not to open a certain type of business or seek employment doing certain things in a particular area for a period of time.

Disadvantages

Partners are jointly liable for all debts. Partners have a responsibility to watch out for the best interests of other partners

Product liability

Payment for injury or damage that occurs during the use of the business's products

Serial entrepreneurs

People who open multiple businesses throughout their career.

Independent contractors

Persons working to achieve a certain goal without being subjected to substantial controls by another

4 steps to structure a negotiation

Prepare what you need to achieve Position by putting your best foot forward Propose solutions that provide value and balance Pounce when agreement on any part of the negotiation appears at hand

Small business investment companies

Private businesses that are authorized to make SBA insured loans to start-ups and small businesses

Replacement value

The cost incurred to replace one asset with an identical asset

Piercing the veil

The dissolution of a corporate form, making it back into a sole proprietorship or general partnership, if the court finds that the owner carelessly mixed up personal and business assets or finances

Risk

The level of probability that an investment will not produce expected gains

Business risk

The level of probability that the future economic state of the business will be worse than expected

Reorganization

The popular name for a Chapter 13 bankruptcy in which a bankrupt firm continues to operate while paying off debts identified by the bankruptcy trustee

Liquidation

The popular name for a Chapter 7 bankruptcy in which a bankrupt firm's assets are sold by the bankruptcy trustee and the proceeds used to pay the firm's debts.

Just-in-time inventory

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer

Fair market value

The price at which goods and services are bought and sold between willing sellers and buyers in an arm's-length transaction

Capital budgeting

The process of deciding among various investment opportunities to create a specific spending plan

Optimum capital structure

The ratio of debt to equity that provides the maximum level of profits

Business life cycle

The sequence or pattern of developmental stages any business goes through during its life span.

Initial public offering (IPO)

Transfer method describing the first-time public sale of a stock listed on a public stock exchange.

LLP Limited Liability Partnership

Two classes of partners: General partner, Limited partners who can work for the firm but cannot actively manage. One partner must be the general partner

Partnership

Two or more people cooperating to conduct a business enterprise

Fair Credit Reporting Act

U.S. federal legislation specifying consumers' rights vis à vis credit reporting agencies

Gift

Valuable assets or services donated to the business without any obligation to repay or give up any ownership interest (typically strings are attached to gifts).

Personnel insurance

available to protect both you and your employees from specific risks Life, Disability, Medical coverage

Intellectual property rights

comprise the legal rights to use unique features of products or services that provide competitive advantage

Credit insurance

covers abnormal losses from credit customers not paying their bills

Business interruption insurance

funds to pay the ordinary operating expenses of your business should it be forced to close temporarily

Medical

most highly desired form of insurance for most employees

Nepotism

A management philosophy of selecting and promoting people based on family ties.

Pull-through system

A term for just-in-time inventory systems in which product is ordered and placed into production only after a sale has been completed

Community development organization

An organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area

Accelerator

An organization that supports startup technology businesses by providing inexpensive office space, a variety of support services, and resources Most are associated with universities

Capital assets

Assets that are expected to provide economic benefits for periods of time greater than one year

independent contractor (Characteristics)

Behavioral: The contractor solely decides how the work is to be done. Financial: The contractor pays his own expenses directly Relational: The independent contractor is employed for a project and the service the contractor provides is not central to the operation of the business

Walkaways

Business terminations in which the entrepreneur ends the business with its obligations met.

credit card

Card entitling one to revolving credit that is not tied to any particular asset, does not have a set repayment schedule, typically has a set upper limit, and is usually tied to a much higher interest rate than that of a bank loan

Open-book policy

Concept that key employees should be able to see and understand a firm's financials should have a part in moving the numbers in the right direction should have a direct stake in the strategy and success of the firm.

Trade secret

Confidential information within a company that gives that company a competitive advantage

Coverages

Contractual provisions of insurance policies that specify what risks the insurance company is assuming

Cost of owning

Cost incurred in financing, insuring, taxing, or tracking an asset

Three elements to most aspects of business law:

Finding the right information, Negotiating the specific outcome you want Taking care of the paperwork associated with it

Grants

Gifts of money made to a business for a specific purpose

Virtual employees

Independent contractors who provide specialized business services or support from a distance, through the Internet, telephone, fax, or another method of communication.

Vicarious (indirect) liability

Indirect liability or responsibility for the actions of another.

Tax codes

Laws and regulations that specify the requirements of taxation include franchise or corporation taxes, income taxes, employee taxes, sales and use taxes, and property taxes

Internet recruiting

Method of recruiting that allows you to search a résumé database or post a job description to the Web A small business owner who knows exactly what he or she wants can use filters to search vast numbers of résumés with pinpoint accuracy

Employee theft

Misappropriation of business property by employees of that business

Equity capital

Money contributed to the businesses in return for part ownership of the business

Outside equity

Money from selling part of your business to people who are not and will not be involved in the management of the business

Intangible property

Property that has no value of its own but that represents value, such as a stock certificate.

Supplemental profits

Returns above costs intended as a secondary income for entrepreneurs (where self-employment is secondary to their main job).

Choosing a Business Form

Six major factors at play: Personal liability of the business owner Taxation of both the entity and its owners Complexity and organizational costs in setting up Control of the business Continuity of the business Ability of the business to raise capital

Collateral

Something of value given or pledged as security for payment of a loan May consist of financial instruments, such as stocks, bonds, and negotiable paper, or of physical goods, such as trucks, machinery, land, or buildings

Protected classes

States of being that are expressly prohibited from suffering discrimination: race, color, religion, sex, national origin, gender, age, or disability

On-the-job training

Techniques include orientations, job instruction training, apprenticeships, internships and assistantships, job rotation, and coaching. Delivered to employees while they perform their regular jobs

Living wage

The amount needed for a person (or family of a particular size) to meet the basic necessities of life from a single job.

Periodic inventory

process of physically counting business assets on a set schedule

Mediation

the dispute is put to a neutral third party who is not a judge

Theft insurance

normally included in insurance on physical assets

Point-of-sale system

Hardware and software combinations that integrate inventory management directly into accounting software

Regulation of the workplace

Laws and governmental rules that limit the freedom of business owners to manage their businesses as they please

Key person

protects you in the event that a key employee dies or is disabled and cannot work

Life insurance

provided to employees to provide security for their families

Perpetual inventory

recording the receipt and sale of each item as it occurs

Supply chain

the line of distribution of a product from its start as materials outside the target firm to its handling in the target firm to its handling by sellers into the hands of customers

Limited partnership

A legal form of business organization that is created by filing required documentation with a state government One or more partners may have no liability for the debts and actions of the partnership

Limited liability company (LLC)

A legal form of business organization that is created by filing required documentation with a state government. Have a choice, under federal tax law, of being taxed as either corporations or partnerships

Pledging receivables

Giving a third party legal rights to debts owed your business in order to provide assurance that borrowed money will be repaid (receivables used as collateral for loan - loan typically 50% of pledged amount).

general partner

In an LLP, the individual considered the manage of the firm, who as such, has unlimited liability for the debts or judgments against the firm

Buyout insurance

Insurance that provides money to owners of a business to buy the shares of any deceased owner from that owner's heirs

Operating lease

A long-term rental in which ownership of the asset never passes to the person paying for the lease

Optimum stocking level

The amount of inventory that results in the minimum cost, when considering the cost of lost sales resulting from running out of stock, the number of units sold per day, and the number of days required to receive inventory Also known as the reorder point