Business Ownership and Structures

A comprehensive set of flashcards covering key concepts related to business ownership, structures, advantages, disadvantages, types of mergers, and franchising.

What are the three major forms of business ownership?

Sole proprietorship, partnership, and corporation.

What is a sole proprietorship?

A business owned and usually managed by one person.

What is a partnership?

A legal form of business with two or more owners.

What characterizes a corporation?

A legal entity with authority to act and have liability separate from its owners.

What percentage of companies are corporations and how much do they earn of the total receipts?

Corporations make up only 20 percent of businesses and earn 81 percent of the total receipts.

What are the key advantages of sole proprietorships?

Ease of starting and ending the business, being your own boss, pride of ownership, leaving a legacy, retention of profits, and no special taxes.

What are the key disadvantages of sole proprietorships?

Unlimited liability, limited financial resources, management difficulties, overwhelming time commitment, few fringe benefits, limited growth, and limited lifespan.

What does 'unlimited liability' mean in terms of sole proprietorships?

Owners are responsible for all debts of the business.

What is a general partnership?

A partnership in which all owners share in operating the business and in assuming liability for its debts.

What is a limited partnership?

A partnership with one or more general partners who manage the business and limited partners who invest money without management responsibilities.

What are the advantages of partnerships?

More financial resources, shared management, pooled skills and knowledge, longer survival, and no special taxes.

What are the disadvantages of partnerships?

Unlimited liability, division of profits, disagreements among partners, and difficulty in termination.

What are C corporations?

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

What are the advantages of corporations?

Limited liability, ability to raise money for investment, size, perpetual life, ease of ownership change, ease of attracting talented employees, and separation of ownership from management.

What are the disadvantages of corporations?

Initial cost, extensive paperwork, double taxation, difficulty of termination, and potential conflicts with stockholders.

What is an S corporation?

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships.

What are limited liability companies (LLCs)?

Similar to S corporations but without special eligibility requirements.

What are some advantages of LLCs?

Limited liability, choice of taxation, flexible ownership, and operating flexibility.

What is a franchise?

An arrangement where a franchisor sells the rights to use a business name and sell a product or service to franchisees.

What are the advantages of franchising?

Management assistance, personal ownership, a nationally recognized name, financial advice, and a lower failure rate.

What are the disadvantages of franchising?

Shared profit, management regulation, large start-up costs, restrictions on selling, and potential fraudulent franchisors.

What defines a cooperative (co-op)?

A business owned and controlled by the people who use it, pooling resources for mutual gain.

What are the types of corporate mergers?

Vertical, horizontal, and conglomerate mergers.

What is a vertical merger?

The joining of two companies in different stages of related businesses.

What is a horizontal merger?

The joining of two firms in the same industry.

What is a conglomerate merger?

The joining of firms in completely unrelated industries.

What is a leveraged buyout (LBO)?

An attempt by employees, management, or private investors to buy out the stockholders in a company.

What are some characteristics of limited partners?

They invest money but do not have management responsibilities and have limited liability.

What does 'pass-through taxation' mean?

Business profits are taxed only as the personal income of the owners.

What are the requirements for an S corporation?

No more than 100 shareholders, only U.S. citizens or estates as shareholders, one class of stock, and less than 25% income from passive sources.

What is a key feature of limited liability companies?

They are nontransferable and do not issue stock.

Why do many companies choose to incorporate in Delaware?

Due to its attractive rules for incorporation.

What is a franchisee?

An individual or company that purchases the rights to operate a franchise.