Unit 6: Business Ownership
S Corps
-Limited liability (owners are still shareholders) -Taxes-single taxation -Cost (-) -Continuity (+) -But...need IRS approval to create, limited # of shareholders
aquisition
An acquisition occurs when a company purchases the assets of another business
C Corps
Independent legal entities owned by shareholders
What is liabilty?
any debt that your company has
Your friend Jody comes to you asking for advice. She owns a moving company called "Whatever Moves You, LLC" (they have cute musical notes in logo—very clever). She has owned the business for 45 years and has seen tremendous growth. Jody would like to transfer ownership of her business to her 30 year old daughter so that she may retire. What do you tell Jody?
"You will need to work with an attorney to see if this is even possible because rules about transferability of LLC's vary by state."
A Subway franchisee does not do a good job managing food safety. Customers purchase sandwiches that contain expired turkey and become ill reflecting poorly on the brand and exposing the company to liability. This is an example of:
A disadvantage for the franchisor—a lack of control over the franchisee resulting in damage to the brand.
A ________ seeks to provide a return to shareholders while pursuing other goals that benefit community or society. *limited liability company * B corporation *C corporation *partnership
B corporation
What are some important factors to consider when choosing an organizational type?
Control versus responsibility, and risk tolerance.
When starting a business, why is it important to understand and consider tax implications?
Different forms of business ownership result in businesses and owners being taxed differently. It is important to understand these differences in order to choose the scenario that best fits your needs.
What are the 2 type of mergers and aquistions?
Horizontal and vertical
You are forming a new company that delivers food to residents across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation. You want to pay each of the partners based on their contribution to the success of the company, which is NOT equal to their percentage ownership. You could accomplish this by forming a(n):
LLC (c for companay, p for partnerships)
In some situations, individual business partners are not obligated to consult with other participants in certain business agreements. The fact that a partner can make business decisions without consulting the other partners is considered to be a disadvantage of a ________.
LLP
The credits and deductions of the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company. This is an example of a benefit enjoyed by which type of organization?
LLP
You and your dear friend want to start an accounting firm together. You know each other well but you don't want to be held responsible for your friends negligence or misconduct should such an event occur. You and your friend also want to be sure that you are only taxed once on company profits. Which type of organizational structure might be best for you?
LLP
In some situations, individual business partners are not obligated to consult with other participants in certain business agreements. The fact that a partner can make business decisions without consulting the other partners is considered to be a disadvantage of a ________.
LLP (partner is keyword)
You are thinking about starting a business. Of course, you want to maximize your income and not pay taxes both as a business and as an individual. You are also concerned about liability. If something bad happens with your business, you don't want to be personally liable. What form of business ownership would best meet your needs?
Limited Liability Company
What is an LLC?
Limited Liability Company—a business structure that is attractive to small business owners because they provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
List 5 Factors of Organizational Type
*Cost of start up *Control vs. responsibility *If you want to share the profits? *Taxation *Entrepreneurial ability *Risk tolerance *Financing *Continuity and transferability
When one company purchases and absorbs another company it is called a(n):
aquisition
Advantages of an S Corporation include: (remember independent life)
Tax savings, business expense tax credits and the business has an independent life from its shareholders.
The main thing that makes S Corporations different from C Corporations is:
That the business is not taxed itself. Only the shareholders are taxed.
Why would a company undertake a horizontal merger or acquisition? *To use its expertise to improve the company then sell it for a higher price. *To increase synergies by merging firms that would be more efficient operating as one. *To take advantage of synergies and potential market share gains. *To tap into a new market formerly unavailable to one of the companies
To take advantage of synergies and potential market share gains.
Sole propietorship advantages/disadvanatages
all profits go to the owner full control of the business freedom from gov's rules no special taxes Difficulty raising capital Limited managerial expertise trouble finding qualified employees personal time commitment Business life's unstable Owner responsible for the losses
The typical fee structure for a franchise including initial franchise fees and royalties, is an example of:
an advantage for the franchisor.
Disney and Pixar coming together was a "match made in cartoon heaven" some say. This undertaking enabled the two companies to collaborate freely and easily resulting in some of the highest grossing animated films of all time. This is a successful example of: *vertical integration. *a licensing agreement. * an acquisition. * a partnership.
an aquisition
Which of the following entities are subject to limited liability? *general partnerships *corporations *sole proprietorships *limited partnerships
corporations
The disadvantages to starting and running a corporation include:
double taxation (limited liability is an advantage)
B corps
for-profit companies that meets general public benefits
When two companies combine to form a new company it is called a(n):
merger
Vertical
merger of 2 companies with a buyer-seller relationship. They successfully work together.
Horizontal
mergering between 2 companies in the same industry
A franchise: * Is the most inexpensive ways to start a business. * provides a proven product, business model and brand to the franchisee. * removes all risk associated with starting a business. * allows an individual to run a business that is owned by a large corporation.
provides a proven product, business model and brand to the franchisee
Corporations whose stock can be sold to the general public are, by definition:
public corporations
What is the most important question a business owner needs to ask themselves if they are considering their business continuity or transferability in the future? 1. How can I set up my business to either continue on without me or be sold? 2. What type of legal structure costs the least amount of money to start? 3. What type of legal structure pays the lowest tax rates? 4. Am I a more of a risk taker or more risk averse?
question 1
A franchisee is generally expected to pay: *an annual fixed fee to the franchisor to stay in business. * a fee to subsidize the start-up costs for future franchisees. * a percentage of corporate employee costs to support the franchise. *royalty fees for support from the franchiser.
royalty fees for support from the franchiser.
Smart Phone Inc. manufactures its custom phone cases for its awesome phones and tablets. It also manufactures its custom touch screen sensors and owns its own shipping company that delivers its phones and tablets straight to customer homes. Smart Phone Inc. is great at ________.
vertical acquisitions