Business Chpt. 6

Flashcard maker : Lily Taylor
sole proprietorship
a form of business ownership with a single owner who usually actively manages the company
partnership
a voluntary agreement under which two or more people act as co-owners of a business for profit
general partnership
a partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm
1. sole proprietorship
2. partnership
3. corporation
4. limited liability company
what are the four forms of business ownership?
corporation
a form business ownership in which the business is considered a legal entity that is separate and distinct from its owners
articles of incorporation
the document filed with a state govt. to establish the existence of a new corporation
limited liability
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
limited liability company
a form of business ownership that offers both limited liability to its owners and flexible tax treatment
sole proprietorship
what is the most common type of business ownership
false
True or False: most individual sole proprietorships are small
true
True or False: when it comes to economic impact, corporations rule
1. ease of formation
2. retention of control
3. pride of ownership
4. retention of profits
5. possible tax advantage
what are the advantages of a sole proprietorship?
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
what are the disadvantages of a sole proprietorship?
1. ability to pool financial resources
2. ability to share responsibilities and capitalize on complementary skills
3. ease of formation
4. possible tax advantage
what are the advantages of general partnerships?
1. unlimited liability
2. potential for disagreements
3. lack of continuity
4. difficulty in withdrawing from a partnership
what are the disadvantages of general partnerships?
limited partnership
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
1. limited partnership
2. limited liability partnership
what are the two types of partnerships?
limited liability partnership
form of partnership in which all partners have the right to participate in management and have limited liability for company debts
c corporation
what is the most common type of corporation?
corporate bylaws
the basic rules governing how a corporation is organized and how it conducts its business
shares of stock, stockholders
ownership of C corporations is represented by ____, so owners are called ____
institutional investors
an organization that pools contributions from investors, clients, or depositors and uses these funds to buy stocks and other securities
board of directors
the individuals who are elected by stockholders of a corporation to represent their interests
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
what are the advantages of c corporations?
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
what are the disadvantages of c corporations?
s corporations
a form of corporation that avoids double taxation by having its income taxed as if it were a partnership
statutory close corporation
a corporation with a limited number of owners that operates under simpler, less formal rules than a c corporation
non profit corporation
a corporation that does not seek to earn a profit and differs in several fundamental respects from c corporations
acquisition
a corporate restructuring in which one firm buys another
merger
a corporate restructuring that occurs when two formerly independent business entities combine to form a new organization
divestiture
the transfer of total or partial ownership of some of a firms operations to investors or to another company
to rid themselves of a part of their company that no longer fits well with their strategic plans
why do firms often use divestitures?
a spin-off and a carve out
what are 2 common types of divestiture called?
spin-off
occurs when a company issues stock in one of its own divisions or operating units and sets it up as a separate company
carve-out
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
1. limited liability
2. tax pass-through
3. simplicity and flexibility in management and operation
4. flexible ownership
what are the advantages of LLCs?
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
what are the disadvantages of LLCs?
franchise
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
franchisor
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
franchisee
the party in a franchise relationship that pays for the right to use resources supplied by the franchisor
distributorship
a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it
business format franchises
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
1. less risk
2. training and support
3. brand recognition
4. easier access to funding
what are the advantages of franchising?
1. costs
2. lack of control
3. negative halo effect
4. growth challenges
5. restrictions on sale
6. poor execution
what are the disadvantages of franchising?
franchise agreement
the contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties
1. terms and conditions
2. fees and other payments
3. training and support
4. specific operational requirements
5. conflict resolution
6. assigned territory
what are the key items normally covered in a franchise agreement?
franchise disclosure document
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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