Survey of Business Exam 2 Flashcards
Single owner who manages the company
Sole Proprietorship
Voluntary agreement between two or more co-owners of a business or profit
Partnership
Advantages of Sole Proprietorship
-ease of formation
-retention of control
-pride of ownership
-retention of profits
-possible tax advantage
Disadvantages of Sole Proprietorship
-limited financial resources
-unlimited liability
-limited ability to attract and maintain talented employees
-heavy workload and responsibilities
-lack of performance
Advantages of Partnership
-ability to pool financial resources
-ability to share responsibilities and capitalize on complimentary skills
-ease of formation
-possible tax advantages
Disadvantages of Partnership
unlimited liability
-potential for disagreements
-lack of continuity
-difficulty in withdrawing form a partnership
Business is considered a legal entity that is separate & distinct from its owners
Corporation
Offers limited liability to owners & flexible tax treatment
Limited Liability Company (LLC)
Advantages of Limited Liability Company (LLC)
-limited liability
-tax pass-through
-simple & flexible management
-flexible ownership
Disadvantages of Limited Liability Company (LLC)
-complexity of formation
-annual franchise tax
-foreign status in other states
-limits on firms that can form LLCs
-differences in state law
All partners take an active role in managing the business; have unlimited liability for claims against the firm
General Partnership
Partnership agreement should entail details regarding
-initial financial contributions
-specific duties & responsibilities
-sharing profits and losses
-settling disagreements
-death or withdrawal of a partner
Includes at least one general partner who actively manages the company and accepts unlimited liability; while other partner gives up the right to actively manage the company in exchange for limited liability
Limited Partnership
All partners have the right to participate in the management and have limited liability for company debt
Limited Liability Partnership (LLP)
Offers limited liability to all stockholders (requires filing articles of incorporation, paying filing fees, and adopting corporate bylaws)
C Corporation
Elected by stockholders to represent their interests
Board of Directors
Organization that pools contributions from investors, clients, or depositors
Institutional Investor
Advantages of C Corporations
-limited liability
-permanence
-ease of transfer of ownership
-ability to raise financial capital
-ability to make use of specialized management
Disadvantages of C Corporations
-expense and complexity of formation and operation
-complications when operating in multiple states
-double taxation of earnings and additional taxes
-more paperwork and regulation & less secrecy
-possible conflicts of interest
Advantages of S Corporations
-internal revenue service doesn’t tax earnings of S Corporations separately
-stockholders have limited liability
Disadvantages of S Corporations
-can only have 100 stockholders
-w/ only rare exceptions, each stockholder must be a U.S. citizen or permanent resident of the U.S.
Advantages of Statutory Close (Closed) Corporation
-operates under simple arrangements than conventional corporations
-owners can participate in management while still having limited liability
Disadvantages of Statutory Close (Closed) Corporation
-limited number of stockholders
-not all states allow formation of this type of corporation
-stockholders normally can’t sell their shares to the public w/out first offering the shares to existing owners
Advantages of Nonprofit Corporation
-earnings are exempt from federal and state income taxes
-members and directors have limited liability
-individuals who contribute money or property to the nonprofit can take a tax deduction
Disadvantages of Nonprofit Corporation
-cannot have stockholders
-cannot distribute dividends to members
-cannot contribute funds to a political campaign
-must keep accurate records and file paperwork to document tax-exempt status
One firm buys another firm
Acquisition
Two formerly independent business entities combine to form a new organization (horizontal, vertical, conglomerate)
Merger
Transfer of total or partial ownership of some of a firm’s operations to investors or to another company
Divestiture
A combination of two firms that are in the same industry
Horizontal Merger
A combination of firms at different stages in the production of a good or service
Vertical Merger
A combination of two firms that are in unrelated industries
Conglomerate Merger
Licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, and business methods
Franchise
Business entity in a franchise relationship that allows others to operate its business using resources it supplies in exchange for money and other considerations
Franchisor
Party in a franchise relationship that pays for the right to use resources supplied by the franchisor
Franchisee
Type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it
Distributorship
Broad franchise agreement in which the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor
Business Format Franchise
Advantages of Franchising
-less risk
-training and support
-brand recognition
-easier access to funding
Disadvantages of Franchising
-costs
-lack of control
-negative halo effect
-growth challenges
-restrictions on sale
-poor execution
Contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties
Franchise Agreement
Detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least 14 calendar days before the franchise agreement is signed
Franchise Disclosure Document (FDD)
Rights to use a franchisor’s trademarks, patents, and signage, and any restrictions on those rights
Terms and Conditions
Fees that a franchisee must pay for the right to use a franchisor’s products and methods
Fees and Other Payments
Training that should be provided by the franchisor to the franchisee
Training and Support
Methods and standards that a franchisee is required to follow
Specific Operational Requirements
Manner in which a franchisor and franchisee handle their disputes
Conflict Resolution
Assigned Territory
Geographic area in which a franchisee will operate and exclusivity of the rights to the area
