Starting a Business Flashcards
Advantages of Sole Proprietorship
Easy to start up, you are your own boss, not sharing profits, pride of ownership, leaving a legacy, no special taxes
Disadvantages of Sole Proprietorship
Unlimited liability, limited growth, limited access to financial resources, huge time commitment, management problems, few fringe benefits
General Partnership
All participants are equal, bear equal amount of risk
Limited Partnership
Owner with unlimited liability and limited partners
Master Limited Partnership (MLP)
Limited Partnership that is publicly traded on the stock exchange, done to avoid corporate taxes
Limited Liability Partnership (LLP)
Partnership in which the liability of the owners is limited
Advantages of a Partnership
More financial resources, longer life span, management is shared, no extra taxes
Disadvantages of a Partnership
Unlimited liability, disputes between partners, sharing profit, difficult to end
Conventional Corporation
State-chartered legal entity with the authority to act and have responsibilities separate from its owners
Advantages of a Corporation
More financial resources, limited liability, can get very large, easy to change ownership, easy to attract employees, separation between management and ownership
Disadvantages of a Corporation
High initial costs, a lot of paperwork, two tax returns: corporate and personal taxes, double taxation: income and dividends, size, difficult to end, conflicts with board of directors
S corporation
Created by the government which is taxed as a partnership
S corporation is possible when…
Doesn’t have more than 100 shareholders, shareholders are individuals living in the US, shareholders only have one kind of share, shareholders do not gain more than 25% of their income from passive sources
Limited Liability Company (LLC)
Business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation
Advantages of a Limited Liability Company (LLC)
Limited liability, flexible laws, free choice of tax type, flexible distribution of losses and gains, operational flexibility
Disadvantages of a Limited Liability Company (LLC)
No shares, short life span, employees pay tax as if they are part of a sole proprietorship, more paperwork
Merger
Result of two firms that form a new firm
Acquisition
One firm taking over the other (buying all the shares of a firm)
Vertical Merger
Two firms that join together who are in different stages in related business
Horizontal Merger
Two firms that join together in the same industry
Conglomerate Merger
Joins two firms in completely unrelated industries
Advantages of a Franchise
Management and marketing assistance, financial advice, being a business owner, recognisable brand name, low failure rate
Disadvantages of a Franchise
High set up costs, management regulations, profit sharing, coat tail effect, sales restrictions
Cooperative
Firm that is owned and controlled by people who use it
