Business Chpt. 6 – Flashcards
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a form business ownership in which the business is considered a legal entity that is separate and distinct from its owners
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corporation
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the document filed with a state govt. to establish the existence of a new corporation
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articles of incorporation
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when owners are not personally liable for claims against their firm. owners with limited liability may lose their investment in the company, but their other personal assets are protected
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limited liability
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a form of business ownership that offers both limited liability to its owners and flexible tax treatment
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limited liability company
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what is the most common type of business ownership
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sole proprietorship
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True or False: most individual sole proprietorships are small
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false
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True or False: when it comes to economic impact, corporations rule
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true
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what are the advantages of a sole proprietorship?
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1. ease of formation 2. retention of control 3. pride of ownership 4. retention of profits 5. possible tax advantage
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what are the disadvantages of a sole proprietorship?
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1. limited financial resources 2. unlimited liability 3.limited ability to attract and maintain talented employees 4. heavy workload and responsibilities 5. lack of permanence
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what are the advantages of general partnerships?
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1. ability to pool financial resources 2. ability to share responsibilities and capitalize on complementary skills 3. ease of formation 4. possible tax advantage
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what are the disadvantages of general partnerships?
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1. unlimited liability 2. potential for disagreements 3. lack of continuity 4. difficulty in withdrawing from a partnership
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a partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability
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limited partnership
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what are the two types of partnerships?
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1. limited partnership 2. limited liability partnership
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form of partnership in which all partners have the right to participate in management and have limited liability for company debts
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limited liability partnership
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what is the most common type of corporation?
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c corporation
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the basic rules governing how a corporation is organized and how it conducts its business
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corporate bylaws
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ownership of C corporations is represented by ____, so owners are called ____
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shares of stock, stockholders
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an organization that pools contributions from investors, clients, or depositors and uses these funds to buy stocks and other securities
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institutional investors
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the individuals who are elected by stockholders of a corporation to represent their interests
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board of directors
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what are the advantages of c corporations?
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1. limited liability 2. permanence 3. ease of transfer of ownership 4. ability to raise large amounts of financial capital 5. ability to make use of specialized management
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what are the disadvantages of c corporations?
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1. expense and complexity of formation and operation 2. complications when operating in more than one state 3. double taxation of earnings and additional taxes 4. more paperwork, more regulation, less secrecy 5. possible conflicts of interest
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a form of corporation that avoids double taxation by having its income taxed as if it were a partnership
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s corporations
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a corporation with a limited number of owners that operates under simpler, less formal rules than a c corporation
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statutory close corporation
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a corporation that does not seek to earn a profit and differs in several fundamental respects from c corporations
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non profit corporation
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a corporate restructuring in which one firm buys another
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acquisition
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a corporate restructuring that occurs when two formerly independent business entities combine to form a new organization
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merger
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the transfer of total or partial ownership of some of a firms operations to investors or to another company
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divestiture
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why do firms often use divestitures?
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to rid themselves of a part of their company that no longer fits well with their strategic plans
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what are 2 common types of divestiture called?
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a spin-off and a carve out
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occurs when a company issues stock in one of its own divisions or operating units and sets it up as a separate company
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spin-off
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like a spin-off but instead of distributing the new stock to its current stockholders, it sells the stock to outside investors which raises additional financial capital
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carve-out
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what are the advantages of LLCs?
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1. limited liability 2. tax pass-through 3. simplicity and flexibility in management and operation 4. flexible ownership
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what are the disadvantages of LLCs?
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1. complexity of formation 2. annual franchise tax 3. foreign status in other states 4. limits on types of firms that can form LLCs 5. differences in state laws
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a licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, business methods, and other property in exchange for monetary payments and other considerations
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franchise
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the business entity in a franchise relationship that allows others to operate its business using resources it supplies in exchange for money and other considerations
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franchisor
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the party in a franchise relationship that pays for the right to use resources supplied by the franchisor
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franchisee
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a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it
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distributorship
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a broad franchise agreement in which the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor
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business format franchises
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what are the advantages of franchising?
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1. less risk 2. training and support 3. brand recognition 4. easier access to funding
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what are the disadvantages of franchising?
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1. costs 2. lack of control 3. negative halo effect 4. growth challenges 5. restrictions on sale 6. poor execution
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the contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties
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franchise agreement
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what are the key items normally covered in a franchise agreement?
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1. terms and conditions 2. fees and other payments 3. training and support 4. specific operational requirements 5. conflict resolution 6. assigned territory
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a detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least fourteen calendar days before the franchise agreement is signed
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franchise disclosure document
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