Exam 2 Flashcards
Ch. 5-6
What are the major forms of business ownership?
- Sole proprietorship
- Partnership
- Corporations
What is a Partnership?
2 or more people legally agree to become co-owners of a business
Define a Corporation
A legal entity with authority to act and have liability apart from its owners
What form of business makes up 20% of businesses but earns 81% of US business?
Corporations
What are the advantages of Sole Proprietorship?
- ease of starting and ending a business
- ability to be your own boss
- pride of ownership
- leaving a legacy
- retention of company profits
- no special taxes
What are disadvantages of Sole Proprietorship?
- Unlimited liability
- Limited financial resources
- Management difficulty
- Overwhelming time commitment
- Few fringe benefits
- Limited growth
- Limited lifespan
What is an MLP
Master Limited Partnership looks like a corporation (is traded on stock market) but is taxed like a partnership/SP
What is an LLP
Limited Liability Partnership is created to limit the disadvantage of unlim. liability, operating without the fear that a partner might commit malpractice resulting in a judgement against you
What are the most common MLPs
oil, real estate and gas industries
What is the UPA
Uniform Partnership Act
1. common ownership
2. shared profits/losses
3. right to participate in managing business
General partner:
owners with unlimited liability and actively managing the company
Limited partner:
Owners with limited liability for only what they invested, not active in managing the company
What are the advantages of a Corporation?
Limited liability, ability to raise more money, size, ease of ownership change, separation of ownership & mgmt
Disadvantages of Corporations:
Size, cost of startup, paperwork, double taxation, double tax returns
Why incorporate?
Special tax advantages and limited liability
S Corporation advantages:
limited liability, simpler taxes
S Corporation qualifications:
have less than 100 stockholders, must be individuals or estates, must be US citizens or permanent residents, have only one class of stock and no more than 25% of income from passive sources
What are the types of Mergers?
- Vertical
- Horizontal
- Conglomerate
What is a leveraged buyout?
An attempt by managers/employees to borrow money and purchase the company - buy all stock and take the company private
Pros and Cons of Franchising
Pros: Management, marketing and financial assistance
Cons: large startup cost, shared profit, mgmt regulation, fraudulent franchisors, selling restrictions
Major challenge to global franchise?
Difficult to transfer idea/product from US to another culture - adaptation is needed
What is a Cooperative
Organizations owned by consumer - members
Why do ___ businesses form cooperatives?
Some small businesses form cooperatives to gain more economic power, purchasing and marketing advantages
List some types of corporations
Alien, Foreign, Domestic, Closed/private, open/public, Quasi-public, Professional, Nonprofit, Multinational
What must firms do to be a B Corp
dedicate substantial resources toward staff and society
What is an S Corp
a unique government creation that looks like a real corporation but is taxed like SP/Partnerships
Where does the name in S Corp come from?
rules governing them found in Subchapter S of the Internal Revenue Code
What does “small” in small business mean?
The Small Business Administration defines small business as one that’s independently owned and operated, isn’t dominant in its field of operation and meets certain standards regarding size of employees or sales
Why do so many small businesses fail?
because of manager incompetence, inadequate financial planning (underpricing/overpricing, etc.)
What goes into a business plan?
cover letter, executive summary, company background, management team, financial plan, capital required, marketing plan, location analysis, manufacturing plan, appendix
What is a business plan?
A written statement, typically 25-50 pgs, that describes the nature of the business, the target market, advantages it will have over competition and the resources and qualifications of the owners
What fund sources should people investigate to start a small business?
personal savings, family and business associates, banks, financial institutions, angel investors, crowdfunding, venture capitalists and government agencies
What are special problems small business owners have in dealing with employees?
Finding competent employees and grooming them for management
Where can budding entrepreneurs find help starting their business?
Accountants, lawyers, marketing researchers, loan officers, insurance agents, the SBA, SBDCs, SBICs, peer groups and college professors
What are some advantages small business owners have against large businesses in global markets?
Foreign buyers enjoy dealing with individuals, small companies provide wider variety of suppliers, can ship quicker and give more personal service
Why don’t more small businesses trade globally?
Financing is often difficult to find, they don’t know how to get started or about the cultural differences in foreign markets, bureaucratic red tape is overwhelming
Define enterprise zones
Specific geographic areas to which the government attracts private business investments by offering lower taxes and government support (empowerment zones)
What is an entrepreneural team?
A group of experienced people from different areas of business who join to form a managerial team with skills to develop, make and market new products
Define Entrepreneurship
accepting risk of starting and running a business
What are incubators?
They offer new businesses in critical stage of early development low cost offices with basic services like accounting, legal advice and secretarial help
What is an Intrapraneur?
Creative people who work as entrepreneurs within a company
Define Market
consumers with unsatisfied needs who have resources and willingness to buy
Define Micropreneur
An entrepreneur who prefers a balanced lifestyle and doesn’t care to have huge expansion
What is SCORE
Service Corps of Retired Executives - a non-profit organization volunteer counselors, often retired executives, who provide free mentoring and business advice to small business owners
What is the SBA
Small Business Administration - a US government agency that advises and assists small businesses providing management training, financial advice and loans
What is SBIC
Small Business Investment Company program - private investment companies licensed by the SBA to lend money to small businesses *must have minimum of 5M capital
What are Venture capitalists?
they may invest in your business for a price, if they take too large of a stake you could lose your business
What are angel investors?
private individuals who invest their money in potentially hot new companies before they go public
