Business Ownership
A form of business ownership with a single owner who usually actively manages the company.
sole proprietorship
When businesses formed as sole proprietorships or business partnerships cannot pay their bills, all or part of the business owner’s personal financial assets, such as cash, bank accounts, investments, or homes, can be seized to pay the business debts.
unlimited liability
Owner of a corporation
Stockholder
Two formerly independent business entities combine to form a new organization
Merger
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.
business format franchise
A voluntary agreement under which two or more people
partnership
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
Individuals elected by stockholders to represent their interests
Board of Directors
One firm buys another
Acquisition
Advantages:
-Operate under simpler arrangements than conventional corporations
-All owners can actively participate in management while still having limited liability
Disadvantages:
-Number of stockholders is limited
-Shares cannot be sold without first offering the shares to existing owners
-Not all states allow this type of formation
Statutory close corporation
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.
general partnership
The document filed with the state government to establish the existence of a new corporation
Articles of Incorporation
Govern how a corporation is organized and how it conducts its business
Corporate bylaws
-Combination of firms that are at different stages in the production of a good or service, creating a buyer-seller relationship
Common Objective:
-Provides tighter integration of production and increased control over the supply of crucial inputs
Vertical merger
-Transfer of total or partial ownership of firm's operations to investors or to another company
-Spin-off: Company issues stock in one of its own divisions and sets it up as a separate company
-Carve-out: Company sells the stock to outside investors, thus raising additional financial capital
Divestiture
A form of business owner-ship in which the business is considered a legal entity that is separate and distinct from its owners
corporation
Cannot actively participate and are protected by limited liability
Limited partnership
Legal business entity that offers limited liability to all of its owners
Advantages:
-Limited liability
-Permanence
-Ease of transfer of ownership
-Ability to raise large amounts of financial capital
-Ability to make use of specialized management
Limitations:
-Expense and complexity of formation and operation
-Complications when operating in more than one state
-Double taxation of earnings and additional taxes
-More paperwork, more regulation, and less secrecy
-Possible conflicts of interest
C corporation
-Combination of firms in the same industry
Common Objective:
-Increases size and market power within the industry
-Improves efficiency by eliminating duplication of facilities and personnel
Horizontal merger
A type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it.
Distributorship
A form of business ownership that offers both limited liability to its owners and flexible tax treatment.
limited liability company (LLC)
All partners participate in management and have limited liability for company debts
Limited Liability partnership (LLP)
Advantages:
-The IRS does not tax earnings separately, thus avoiding the problem of double taxation
-Stockholders have limited liability
Limitations:
-No more than 100 stockholders
-Each stockholder must be a U.S. citizen or permanent resident
S corporation
-Combination of firms in unrelated
industries
Common Objective:
-Reduces risk by making the firm less vulnerable to adverse conditions in any single market
Conglomerate merger
-Detailed description of all aspects of a franchise
-Should be provided to franchisee at least fourteen calendar days before franchise agreement is signed
Franchise Disclosure Agreement (FDD)