Types of Businesses Flashcards
What is a sole proprietorship?
A sole proprietorship is owned and usually operated by one person. It’s the easiest to start and the most popular form of business.
What are the 5 advantages of starting a sole proprietorship?
- They are easy to start and close
- Pride of ownership
- The owner retains all profits
- No special taxes (All profits are - taxed to personal income to the owner’s taxes without having to pay any federal (government business) taxes like bigger businesses).
- Flexibility of being your own boss
What are the disadvantages of starting a sole proprietorship?
- Unlimited Liability - A business owner is personally held accountable for all the debts of the business. Insurance can help.
- Lack of continuity - If the owner dies or is claimed legally incompetent the business is discontinued.
- Lack of money - Banks, suppliers, and other lenders are very unwilling to lend large amounts to sole proprietorships
- Lack of management skills - Even experienced managers don’t have all the skills
- Difficulty hiring and keeping employees since there is a limit on advancement in position and salary.
DBA
Doing Business As
What is a partnership?
A voluntary form of 2 or more persons to act as co-owners of a business for a profit. Most only have 2 owners. There is no legal limit on the maximum number of partners.
What are the types of partnerships?
- General Partnership: Assumes full or shared responsibility of operating a business. Two or more businesses are liable for small business activities.
- Limited Partnership: Contributed capital but has no responsibility or liability for losses beyond the initial
What is a partnership agreement?
The legal terms of a partnership explaining everyone’s rights and responsibilities.
A partnership agreement explains
- Amount of cash and other contributions to be made by each partner
- Division of partnership income (or loss)
- Partner responsibilities—who does what
- Conditions under which a partner can sell an interest in the company
- Conditions for dissolving the partnership
- Conditions for settling disputes
What are the advantages of a Partnership?
Combined skills and knowledge that a partner or partners can contribute to the partnership. Other advantages include ease of startup, availability of capital and credit, personal interest, combined business skills and knowledge, retention of profits, and no special taxes.
What are the disadvantages of a Partnership?
The general partners in a partnership have unlimited liability for the debts of the business, especially for partners with a great deal of personal wealth. Other disadvantages include management disagreements, lack of continuity, and a frozen investment. Being a partner also means that there is shared decision-making, and many people aren’t comfortable with that scenario. Partners often have differences of opinion on how to run a business, and disagreements can escalate to the point of actual conflict; in fact, they can even jeopardize the continuance of the business. In addition to sharing ideas, partners also share profits.
What is a corporation?
“Artificial person” is created by law with most legal rights of a real person.
What rights does a corporation have?
- Right to start and operate a
business - The right to buy and sell property
-The right to borrow money - The right to sue and be sued
- Right to enter binding contracts
How does a corporation’s ownership work?
Corporations are owned by shareholders who invest money in a business by buying shares of stock.
What is a stock?
Shares of ownership in a corporation
What is a stockholder?
An individual who owns a corporation’s stock
What is an open corporation?
Stock is bought and sold on security exchanges and can be purchased by any individual
What is a closed corporation?
Stock is sold on security exchanges and can be purchased by any individual.
What is a domestic corporation?
A business that stays in the state in which it is incorporated.
What is a foreign corporation?
Any other state in which it makes business.
What is an alien corporation?
A corporation out of the country
What is a corporate charter?
A contract between a corporation and the state
What does a corporate charter comprise?
- Names and addresses of the firms and their incorporators
- Purpose of the corporation
- Maximum amount and types of stocks to be issued
- Rights and privileges of stockholders
- Length of time the corporation is to exist (generally forever)
What is common stock?
Owners that have voting rights. They also have claims on profits and assets subordinate to others.
What is a preferred stock?
Owners do not have owner’s rights. Claims on dividends over common-stock owners.
What are dividends?
Distributions of earrings to the stockholders of a corporation.
All stockholders have the right to attend the corporation’s annual meeting.
What is a proxy?
When a stockholder cannot attend the annual meeting there is a list of issues to be decided at the stockholders’ meeting. This enables the transfer of voting rights to another stockholder(s).
What is the purpose of the top governing board?
Elected by an organizational meeting by the stockholders, responsible for setting company goals and developing strategies.
What is the purpose of corporate officers?
- Appointed by the board of directors
- Chairman of the board
- President
- Executive vice president
- Corporate Secretary
- Corporate treasurer
Corporation Advantages
Limited liability
Ease of raising capital
Ease of transfer of ownership
Perpetual life
Specialized formation
Corporation Disadvantages
- Difficulty and expense of formation
- Government regulation and increased paperwork
- Conflict within a corporation
- Double taxation
- Lack of secrecy
Franchise
A license to operate an individually owned business as though it were part of a chain of outlets or stores
Franchising
Actual granting of a franchise
Franchisor
Individuals or organizations granting a franchise
Franchisee
Person or organization purchasing a franchise
Advantages to the franchisor
Well-controlled distribution
No need to construct and operate its own outlets
More capital for production and advertising
Maintain product and quality control
Motivated franchisees
Advantages to the franchisee
Name recognition of franchisor
Limited capital investment
Business experience of the franchisor
Advertising materials and participation in national campaigns
Disadvantages
Disadvantages to the franchisor
Failure of the franchisee to operate the franchise properly
Contract disputes and lawsuits between the franchisor and the franchisees
Disadvantages to the franchisee
The franchisor retains control, Contract dictates everything
Being too successful can lead to competing franchises within the franchisee’s market
Disadvantages to the franchisee
The franchisor retains control, Contract dictates everything
Being too successful can lead to competing franchises within the franchisee’s market
