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BUS Ch.5

Most people who start businesses in the U.S. are sole proprietors. What are the advantages and disadvantages of sole proprietorships
The primary advantages of sole proprietors are: Ease of starting and ending the business, being your own boss, pride of ownership. leaving a legacy, retention of company profits, no special taxes. Disadvantages include: Unlimited liability, limited financial resources, management difficulties, overwhelming time commitment, few fringe benefits, limited growth, limited life span.
Why would unlimited liability be considered a major drawback to sole proprietorships
With unlimited liability, the sole proprietor is liable for all debts and obligations of the business and must pay them even if it means selling your home, car, or whatever else you own.
Sole Proprietorship
A business owned, and usually managed, by one person
Partnership
Two or more people legally agree to become co-owners of a business
Corporation
A legal entity with authority to act and have liability apart from its owners
MAJOR BENEFITS of SOLE PROPRIETORSHIP
-Ease of starting and ending the business
-Being your own boss
-Pride of ownership
-Leaving a legacy
-Retention of company profit
-No special taxes
DISADVANTAGES of SOLE PROPRIETORSHIPS
-Unlimited Liability — Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else.
-Limited financial resources
-Management difficulties
-Overwhelming time commitment
-Few fringe benefits
-Limited growth
-Limited life span
General Partnership
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 (partner) who has unlimited liability and is active in managing the firm
Limited Liability
means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk.
Master Limited Partnership
A partnership that looks much like a corporation, but is taxed like a partnership and thus avoids the corporate income tax.
Limited Liability Partnership
Limits partners’ risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision.
ADVANTAGES of PARTNERSHIPS
-More financial resources
-Shared management and pooled/complementary skills and knowledge
-Longer survival
-No special taxes
DISADVANTAGES of PARTNERSHIPS
-Unlimited liability
-Division of profits
-Disagreements among partners
-Difficult to terminate
What’s the difference between a limited partner and a general partner
1) A general partner is an owner who has unlimited liability and can be active in managing the firm. A limited partner is an owner who invests money in the business, but does not have any management responsibility or liability for losses beyond his or her investment.
Conventional (C) Corporation
A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders
ADVANTAGES of CORPORATIONS
-Limited liability
-Ability to raise more money for investment
-Size
-Perpetual life
-Ease of 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 termination
-Possible conflict with stockholders and board of directors
S Corporation
A unique government creation that looks like a corporation, but is taxed like sole proprietorships and partnerships.
Limited Liability Company
Similar to an S corporation, but without the eligibility requirements
Advantages of LLCs
-Limited liability
-Choice of taxation
-Flexible ownership rules
-Flexible distribution of profits and losses
-Operating flexibility
DISADVANTAGES of LLCs
-No stock, therefore ownership is nontransferable
-Limited life span
-Fewer incentives
-Taxes
-Paperwork
What are the major advantages and disadvantages of incorporating a business
Advantages of incorporating a business include: Limited liability, ability to raise more money for investment, size, perpetual life, ease of ownership change, ease of attracting talented employees, separation of ownership from management. Disadvantages of incorporating are: Initial cost, extensive paperwork, double taxation, two tax returns, size, difficulty to terminate, possible conflict with stockholders and board of directors.
What’s the role of owners (stockholders) in the corporate hierarchy
Stockholders do not have to be employees of the corporation. They are investors who have limited liability. Stockholders elect the board of directors of a company who select the management to control the company.
If you buy stock in a corporation and someone gets injured by one of the corporation’s products, can you be sued? Why or why not
Stockholders in a corporation have limited liability meaning as owners they are responsible for its losses only up to the amount they invested. The corporation could be sued and forced out-of-business but the stockholder would only lose what he/she invested.
Why are so many new businesses choosing a limited liability company (LLC) form of ownership
Limited liability companies have become a popular way to form a business since all fifty states now recognize LLCs. Some of the advantages of LLCs are: Limited liability, choice of taxation (can be taxed as a partnership
Franchising
An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory.
ADVANTAGES of FRANCHISING
-Management and marketing assistance
-Personal ownership
-Nationally recognized name
-Financial advice and assistance
-Lower failure rate
DISADVANTAGES of FRANCHISING
-Large start-up costs
-Shared profit
-Management regulation
-Coattail effects
-Restrictions on selling
-Fraudulent franchisors
Cooperatives
Businesses owned and controlled by the people who use them- producers, consumers, or workers with similar needs who pool their resources for mutual gain
What are some of the factors to consider before buying a franchise
Before buying a franchise be sure to check a company’s (franchisor’s) resources and reputation. There are many franchising scams. The checklist in this chapter gives advice about things to consider before buying a franchise.
What opportunities are available for starting a global franchise
Successful franchising in global markets offers the same opportunities as in domestic markets. However, franchisors must be careful to adapt to the region where they wish to expand. McDonald’s for example has more than 33,000 restaurants in 119 countries.

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