Business 101- Chapter 5

Sole Proprietorship

a business that is owned and usually managed by one person

partnership

a legal form of business with two or more owners

corporation

a legal entity with authority to act and have liability apart from its owners

Advantage of a Sole Proprietorship

ease of starting and ending the business
being your own boss
pride of ownership
leaving a legacy
retention of company profits
No special taxes

Disadvantage of a Sole Proprietorship

unlimited liability- the risk of personal losses
limited financial resources
management difficulties
overwhelming time commitment
few fringe benefits
limited growth and life span

General Partnership

a partnership in which all owners share in operating the business and in assuming liability for the business's debts

limited partnership

a partnership with one or more general partners and one or more limited partners

general partner

an owner who has unlimited liability and is active in managing the firm

limited partner

an owner who invest money in the business but does not have any management responsibility or liability for losses beyond the investment

limited liability

the responsibility of a business's owners for losses only up to the amount they invest

Master limited partnership

a partnership that looks much like a corporation but is taxed like partnership and thus avoids the corporate income tax

limited liability partenership

limits partners' risks of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision.

Advantages of Partnerships

more financial resources
shared management and pooled skills and knowledge
longer survival
no special taxes

Disadvantages of Partnerships

unlimited liability
division of profits
disagreements among partners
difficulty of termination

conventional corporation

a state-chartered legal entity with authority to act and have liability separate from its owners

Advantages of Corporations

limited liability
ability to raise more money for investment
size
perpetual life
ease or ownership change
ease of attracting talented employees
separation of ownership from management

Disadvantages of Corporations

initial cost
extensive paperwork
double taxation
two tax returns
size
difficulty of terminations
possible conflict with stockholders and board of directers

S Corporation

a unique government creation that looks like a corporation buy is taxed like sole proprietorship and partnerships

Limited liability company (LLC)

a company similar to an S corporation but without the special eligibility requirments

merger

the result of two firms forming one company

acquisition

one company's purchase of the property and obligations of another company

vertical merger

the joining of two companies involved in different stages of related business

horizontal merger

the joining of two firms in the same industry

conglomerate merger

the joining of firms in completely unrelated industries

leveraged buyout

an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing

franchise agreement

an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory

franchisor

a company that develops a product conception and sells others the rights to make and sell the products

franchise

the right to use a specific business's name and sell its products or services in a given territory

franchisee

a person who buys a franchise

Advantages of Franchises

management and marketing assistance
personal ownership
nationally recognized name
financial advice and assistance
lower failure rate

Disadvantages of franchises

large start-up costs
shared profit
management regulation
coattail effects'
restrictions on selling
fraudulent franchisors

cooperative

a business owned and controlled by the people who use it