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Terms in this set (82)
approximately how many businesses are started each year in the US?
400,000
The three major forms of business ownership:
1. Sole proprietorships
2. Partnerships
3. Corporations
sole proprietorship
A business that is owned, and usually managed, by one person.
Many people do not have what to run a business on their own?
money, time, or desire
partnership
A legal form of business with two or more owners.
corporation
A legal entity with authority to act and have liability separate from its owners.
Advantages of Sole Proprietorship
1. Ease of starting and ending the business.
2. Ability to be your own boss
3. Pride of ownership.
4. Leaving a legacy.
5. Retention of company profits.
6. No special taxes.
Disadvantages of Sole Proprietorship
1. Unlimited liability—the risk of personal losses.
2. Limited financial resources.
3. Management difficulties
4. Overwhelming time commitment
5. Few fringe benefits
6. Limited growth
7. Limited life span
Types of Partnerships
(1) general partnerships
(2) limited partnerships
(3) master limited partnerships
general partnership
A partnership in which all owners share in operating the business and in assuming liability for the business's debts.
limited partnership
A partnership with one or more general partners and one or more limited partners.
limited partner
An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment.
limited liability
The responsibility of a business's owners for losses only up to the amount they invest; limited partners and shareholders have limited liability.
master limited partnership (MLP)
A partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax.
limited liability partnership (LLP)
A partnership that limits partners' risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision.
Advantages of Partnerships
1. More financial resources
2. Shared management and pooled/complementary skills and knowledge
3. Longer survival
4. No special taxes
Disadvantages of Partnerships
1. Unlimited liability
2. Division of profits
3. Disagreements among partners
4. Difficulty of termination
conventional (C) corporation
A state-chartered legal entity with authority to act and have liability separate from its owners.
Who is 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.
Stockholders
Alien Corporation
does business in the US but is chartered (incorporated) in another country
domestic coporation
does business in the state in which they are chartered (incorporated)
Foreign Corporations
do business in one state but are chartered in another. About one-third of all corporations are chartered in Delaware because of its relatively attractive rules for incorporation. A foreign corporation must register in states where it operates.
closed (private) corporation
have stock that is held by a few people and isn't available to the general public
open (public) corporation
Sells stock to the general public. General Motors and ExxonMobil are examples of public corporations
quasi-public corporation
are chartered by the government as an approved monopoly to perform services to the general public. public utilities are examples.
Professional Corporation
owned by those who offer professional services (doctors, lawyers, etc.) Shares in professional corporations aren't publicly traded.
nonprofit (or not-for-profit) corporation
don't seek personal profit for their owners
multinational corporation
operate in several countries
Advantages of a corporation
1. Limited liability
2.
Ability to raise more money for investment
3. Size
4. Perpetual life
5. Ease of ownership change
6. Ease of attracting talented employees
7. Separation of ownership from management
Disadvantages of a corporation
1. Initial cost
2. Extensive paperwork
3. Double taxation
4. Two tax returns
5. Size
6. Difficulty of termination
7. Possible conflict with stockholders and board of
directors
The process of forming a corporation varies somewhat from state to state
-The corporation's name.
-The names of the people who incorporated it.
-Its purposes.
-Its duration (usually perpetual).
-The number of shares that can be issued, their voting rights, and any other rights the shareholders have.
-The corporation's minimum capital.
-The address of the corporation's office.
-The
name and address of the person responsible for the corporation's legal service.
-The names and addresses of the first directors.
-Any other public information the incorporators wish to include.
corporations bylaws
-How, when, and where shareholders' and directors' meetings are held, and how long directors are to serve.
-Directors' authority.
-Duties and responsibilities of officers, and the length of
their service.
-How stock is issued.
-Other matters, including employment contracts.
S corporation
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships.
In order to qualify for an S corporation,
1. Have no more than 100 shareholders. (All members of a family
count as 1 shareholder.)
2. Have shareholders that are individuals or estates, and who (as individuals) are citizens or permanent residents of the United States.
3. Have only one class of stock.
4. Derive no more than 25 percent of income from passive sources (rents, royalties, interest).
How many years does it take to operate again when an S corporation loses its S status?
An S corporation that loses its S status may not operate under it again for at least five years
limited liability company (LLC)
A company similar to an S corporation but without the special eligibility requirements.
LLCs Advantages include:
1. Limited liability
2. Choice of taxation
3. Flexible ownership rules
4. Flexible distribution of profits
and losses
5. Operating flexibility
LLC's Disadvantages
1. No stock
2. Fewer incentives
3. Taxes
4. Paperwork
merger
The result of two firms forming one company.
acquisition
One company's purchase of the property and obligations of another company.
vertical merger
The joining of two companies involved in different stages of related businesses.
horizontal merger
The joining of two firms in the same industry.
conglomerate merger
The joining of firms in completely unrelated industries.
leveraged buyout (LBO)
An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing.
franchise agreement
An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.
franchisor
A company that develops a product concept and sells others the rights to make and sell the products.
franchise
The right to use a specific business's name and sell its products or services in a given territory.
franchisee
A person who buys a franchise.
Advantages of Franchising
1. Management and marketing assistance
2. Personal ownership
3. Nationally recognized name
4. Financial advice and assistance
5. Lower failure rate
Diadvantages of Franchising
1. Large start-up costs
2. Shared profit
3. Management regulation
4. Coattail
effects
5. Restrictions on selling
6. Fraudulent franchisors
cooperative (co-op)
A business owned and controlled by the people who use it—producers, consumers, or workers with similar needs who pool their resources for mutual gain.
The easiest type of business entity to form is a
sole proprietorship
Many people do not like working for someone, so being your own ____________ is an advantage of sole proprietorships.
boss
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
Mark, Cal and Aidan have decided to form a business where all owners will share in operating the business and in assuming liability for the business debts. They are most likely forming a(n) ____________ partnership.
general
True or false: Partnerships are less likely to survive than sole proprietorships.
False
If you start and manage a landscaping business on your own, you have likely started a:
sole proprietorship
A partnership _________ can spell out the requirements of terminating a partnership.
agreement
True or false: The main advantage of a sole proprietorship is ease of start up.
true
A state-chartered legal entity with authority to act and have liability separate from its owners is a:
corporation
In a sole proprietorship, any debts or damages incurred by the business are your personal debts and you must pay them. This disadvantage is known as:
unlimited liability
In a general partnership, all partners share the responsibility for operating the business and assume
liability
An advantage of the separation of ownership from management in corporations is that the company can raise money from investors but the investors:
are not involved in daily operations
An advantage of partnerships is a longer ____________ rate than sole proprietorships, because they become more disciplined and the business's life is based on all the partners.
survival
Termination of a partnership is difficult without a(n) ___________ agreement.
partnership
A major disadvantage of the corporate form deals with the tax situation called ___________ taxation.
double
A corporation is a legal __________ with authority to act and have liability separate from its owners.
entity
Which of the following are true regarding the process of forming a corporation.
-The articles of incorporation must be filed in the state in which the company will be
incorporated
-The bylaws of the corporation describe how the firm is to be operated
A(n) ___________ is a state-chartered entity that exists in the eyes of the law and controls risk to the owners of the firm.
corporation
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships is:
an S corporation
Stockholders are ________ from the managers and employees of the firm because they are not actively involved in the operations of the firm.
separate, independent, or separated
Studies have indicated that partnerships are four times more likely to succeed than:
sole proprietorship
Which are considered disadvantages of incorporating?
-Initial Cost
-Extensive paperwork
-Double Taxation
Don wanted to incorporate his business and liked the attributes of an S-corporation, however, he did not feel the eligibility requirements would work for his purposes. He is likely to choose to form a(n) __________ __________ company.
limited liability
A corporation is formally formed with:
articles of incorporation and bylaws
A unique government creation that looks like a corporation but is taxed like a sole proprietorship or partnership is called a(n) __________ corporation.
S
An LLC submits a written operating agreement, similar to a(n) ____________ agreement, describing how the company is to be operated.
partnership
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.
...
The result of two firms joining to form one is called a(n):
merger
A(n) ______ is where one company purchases the property and obligations of another.
acquisition
A merger that joins two companies involved in different but related levels of an industry is a(n) ______ merger.
vertical
LLC's are considered to have operational flexibility because while they must submit articles of organization,they are not required to:
keep minutes or hold annual meetings
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