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  • Three Major Forms of Business Ownership

    1. sole proprietorship
    2.Partnerships
    3. Corporations

    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 separate from its owners

    Advantages of sole proprietors

    1. Ease of starting and ending the business
    2. Being your own boss
    3. Pride of ownership
    4. Leaving a legacy
    5. Retention of company profits
    6. No special tax (taxed as the person income of the owner, and and pays normal income tax)

    Disadvantages of sole proprietors

    1. Unlimited liability
    2. Limited financial resources
    3. Management difficulties
    4. Overwhelming time commitment
    5. Few fringe benefits ( No paid health insurance, vacations, etc)
    6. Limited growth
    7. Limited life span ( Business no longer exists once the sole proprietors dies or retires)

    Three types of partnerships

    1. General partnership
    2. Limited partnership
    3. Master limited partnership

    General Partnership

    All owners sharing in operating the business and in assuming liability for the businesses debts

    Limited Partnership

    one or more general partners and one or more limited partners

    A general partner

    is an owner (partner) who has unlimited liability and is active managing the firm

    A limited partner

    an owner who invests money in the business but does not have any management responsibility or liability beyond his or her investment

    Limited liability

    the limited partners liability for the debts of the business is limited to the amount they put into the company; their personal assets are not at risk

    Master limited partnership

    Looks like a corporation in that it acts like a corporation and is traded on the stock exchanges like a corporation, but it is taxed like a partnership and thus avoids the corporate income tax

    Limited liability partnership (LLP)

    Limits partners risks of losing their personal assets to the outcome of only their own acts and omissions and those of people under their supervision

    Uniform Partnership Act

    1. Common ownership
    2. Shared profits and losses
    3. The right to participate in managing the operations of the business

    Advantages of Partnership

    1. More financial resources
    2. Shared management and pooled/ complementary skills and knowledge
    3. Longer survival
    4. No special taxes

    Disadvantages of Partnership

    1. Unlimited liability
    2. Division of profits
    3. Disagreements amongst partners
    4. Difficulty of termenation

    Conventional (Sub-Chapter C) Corporation

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

    Advantages of Corporations

    1. Limited Liability
    2. Ability to raise more money to invest
    3. Size ( Can raise bigger amounts of money to work with bigger corporations and factories)
    4. Perpetual life
    5. Ease of ownership change
    6. Ease of attracting talented employees
    7. Separation of ownership from management

    Levels of Corporation Management

    1. Owners/Stockholders (Elect board of directors)
    2. Board of directors (hire officers)
    3. Officers (set corporate objectives and select managers)
    4. Managers (supervise employees)
    5. Employees

    Disadvantage of Corporations

    1. Initial cost
    2. Extensive paperwork
    3. Double taxation
    4. Two tax returns
    5. Size (can become to inflexible and tied down)
    6. Difficulty of termination
    7. Possible conflict with stockholders and board of directors

    S Corporation

    a unique government creation that looks like a corporation but is taxed like sole proprietorship and partnership

    How to Qualify to be an S Corporation

    1. Have no more than 100 shareholders
    2. Have shareholders that are individuals or estates, and who are citizens or permanent residents of the US
    3. Have only one class of stock
    4. Derive no more than 25% of income from passive resources

    Limited Liability Company (LLC)

    Similar to an S corporation, but without a special eligibility requirements

    LLC's advantages

    1. Limited Liability
    2. Choice of taxation
    3. Flexible ownership rules
    4. Flexible distributions of profits and losses
    5. Operating flexibility

    LLC's disadvantages

    1. No stock
    2. Limited life span
    3. Fewer incentives
    4. Taxes
    5. Paperwork

    Merger

    The result of two firms joining together

    Acquisition

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

    Vertical merger

    joins two firms operating in different stages of related businesses

    A horizontal merger

    joins two firms in the same industry and allows them to diversify or expand their products

    Conglomerate Merger

    unites firms in completely unrelated industries in order to diversify business operations and investments

    A leveraged buyout (LBO)

    is an attempt by employees, management or a group of private investors to buy out the stockholders in a company, primarily by borrowing the necessary funds

    A franchise agreement

    where someone with the good idea (the franchisor) sells the rights to use the businesses name and sell a product or service (the franchise) to others (the franchisees) in a given territory

    Advantages of franchising

    1. Management and Marketing assistance
    2. Personal ownership
    3. Nationally recognized name
    4. Financial Advice and Assistance
    5. Lower failure rate

    Disadvantages of franchising

    1. Large start-up costs
    2. Shared profit
    3. Management regulation
    4. Coattail effects ( What happens to your franchise if other franchises fail?)
    5. Restricting on selling
    6. Fraudulent franchisers (Not all are big like McDonald's and Subway--"you get what you payed for")

    Who franchises more?

    Women; own about 21% and 45% are co-owned by males

    Advantages of Family-owned Franchieses

    1. Relief of stress from commuting
    2. Extra time for family activities
    3. Low overhead expenses

    Disadvantaged of Family-owned Francieses

    Feeling of isolation

    What decides if a franchise wants to open online or a store?

    Financing

    What is the most targeted place for U.S franchises?

    Canada

    What makes franchising successful in global markets?

    Convenience & predictable level of service and quality

    Cooperative (Co-op)

    Owned and controlled by the people who use it--producers, consumers or workers

    Sole Proprietorship Qualities

    1. One owner
    2. Ease of formation
    3. Business dies when you die/retire
    4. Unlimited Liability
    5. Taxed at the individual tax rate

    Partnership Qualities

    1. Two owners minimum (More than one)
    2. Ease of formation--not as easy as proprietorship because you must find a partner
    3. When a partner dies, the business dies
    4. Unlimited & Limited Liability (Only have up to the investment that they made in the company)
    5. Taxed at the individual partners tax rate

    Corporation Qualities

    1. One to infinity of owners
    2. Formation is complex (must follow state rules)
    3. Perpetual life (Does not die until the owner dissolves it)
    4. Limited Liability (Only can claim assets of the corporation)
    5. Subject to double taxation

    Liability

    If the corporation, partnership or sole proprietors screws up it's who has to pay up

    Double taxation

    Corporation tax + Individual tax rate for the owners

    Corporation tax rate

    35%

    What is the largest form of a company?

    Sole Proprietorship

    Who generates the most revenue?

    Corporations

    B Corporations

    Judged on how they meet their own set of socially or environmentally beneficial goals

    Who can incorporate?

    Anyone

    Qualifications of S Corporations

    - Have no more than 100 shareholders.
    - Have shareholders that are individuals or estates and are citizens or permanent residents of the U.S.
    - Have only one class of stock.
    - Derive no more than 25% of income from passive sources.
    * If an S corporation loses its S status, it may not operate under it again for at least 5 years

    Cities with the most Minority-Run Firms

    1. Atlanta, GA
    2. Baltimore, MD
    3. Nashville, TN
    4. Houston, TX
    5. Miami - Ft. Lauderdale, FL

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