CH3- Business Formation Flashcards
What is a Sole proprietorship?
Single person or married couple runs a business, an extension of you as a person.
What are the advantages of a sole proprietorship?
Easy formation (less paper work)
Control (less conflit)
Retention of profits (all profit goes to you)
Tax advantages (earnings taxed only as income of the proprietor)
What are the disadvantages of a sole proprietorship?
Limited financial resources (raising money can be tough)
Unlimited liability (extension of it’s owner, personal wealth can be seized)
Limited ability to attract and keep talent (unable to pay high salaries and offer growth)
Heavy workload and responsibilities
Impermanent (once you die so does your business.)
What is a partnership?
More than one owner, more profitable than sole proprietorship
What are the types of partnerships?
General partnership
Limited partnership
Limited liability partnership
What is a general partnership?
Everyone is equal
A typical partnership agreement : initial financial contribution, duties and responsibilities, how to share loss/profit, how to settle disagreement.
What are the advantages of a general partnership?
Better financial pool (more people investing)
Shared responsibilities (shared burden)
Ease of formation
Tax advantages
What are the disadvantages of a general partnership?
Unlimited liability (also liable for your partners mistakes)
Potential disagreements (confit and delay in decision making if cant agree)
Difficulty withdrawing
Lack of continuity
What is a limited partnership?
At least one general partner
At least one limited partner
What are the advantages of a limited partnership?
Limited liability
What are the disadvantages of a limited partnerships?
No management input
Risk to general partner
What is limited liability partnership?
Only available to certain professional groups
What are the advantages of limited liability partnership?
Limited liability
Tax advantages
Who are the owners of a corporation?
Shareholders
What is a public corporation?
Shares and stocks can be bought by the public
What is a private corporation?
Shares and stocks are not trades publicly (few holders)
What are the advantages of a corporations?
Limited liability Easy funding Specialized management Permanence Ease of ownership transfer
What are the disadvantages of a corporation?
Double taxation
More paperwork and regulation
Complexity of formation and operation
Operating in more than one province
Horizontal merger?
Combinaison same industry
What is a vertical merger?
Combinaison different stage of production (buyer and seller relationship)
What are the conglomerate merger?
Combinaison unrelated industries
What is a cooperative?
Every member owns equal part formed to meet common need
What are the advantages of a cooperative?
Limited liability
Owner continuity
One vote per member
Tax only at individual member level
What are the disadvantages of a cooperative?
No incentive to invest
What are the two type of franchising agreements?
Distributorship
Business format
What is the distributorship agreement?
Franchisor makes a product and grants distributors a license to sell it
What is a business format franchise?
Franchisor grants the franchisee the right to both make and sell its goods or services
What are the elements of the franchising agreement?
Terms and conditions Fees and other payments Training and support Operational requirements Conflict resolution Assigned territory
What are the advantages of franchising for the franchisor?
Rapid growth Shared advertising cost Increased investment money Development of motivated sales team Increased revenue No need to deal with local business issues
What are the advantages of franchising for franchisee?
Low failure rate Management expertise Profit Financial assistance Economies of scale in buying supplies Training provided Well developed brand
