Business Structures: Sole Proprietorships, Partnerships, Corporations

C Corporation

A corporation with limited liability, taxed separately from its owners.

Partnership

A business owned by two or more people.

Advantages of Partnership

More financial resources; Easier to manage with partners; Different skills and perspectives; Long-lasting; Taxed as personal income.

Disadvantages of Partnership

Unlimited liability for general partners; Sharing profits can cause disputes; Disagreements on management; Difficult to exit.

Limited Partner

A partner who invests but has limited liability.

Corporation

A company operating separately from its owners (stockholders) with limited liability.

Advantages of Corporation

Limited liability for owners; Can raise money by selling stocks or bonds; Ability to hire specialists and experts; Continuous life (separate from owners); Attracts skilled employees with benefits.

Disadvantages of Corporation

High incorporation costs; Double taxation; Must keep detailed records; Can be difficult to dissolve; Potential conflict between stockholders and management.

S Corporation

A government creation similar to a corporation, but taxed like sole proprietorships and partnerships. It avoids double taxation.

Limited Liability Company (LLC)

A business structure that provides limited liability and operational flexibility, taxed as either a corporation or partnership.

Vertical Merger

When two firms in related business but different phases merge (e.g., Coke and syrup).

Conglomerate Merger

When firms from completely unrelated industries join together.

Leveraged Buyout (LBO)

Borrowing money to buy a company and improve it to make a profit.

Advantages of Franchise

Established product and business model; Support with location, promotion, and operation; Recognized brand name with loyal customers; Financial assistance from experts; Low failure rate.

Disadvantages of Franchise

High fees and royalties; Strict management; Coattail effects from other franchises; Restrictions on selling the business.

Cooperative

An organization owned and controlled democratically by its members, who pool resources for mutual gain.

Limited Liability

Owners are only liable for their investments, not other business debts.

Franchise Agreement

A legal agreement between franchisor and franchisee outlining rights and responsibilities.

Sole Proprietorship

A self-owned business run by a single person.

Advantages of Sole Proprietorship

Easy to start and end; You're your own boss; All profits go to the owner; No special taxes (only personal income); Business can be passed to heirs.

Disadvantages of Sole Proprietorship

High start-up and maintenance costs; Limited funds and resources; Overwhelming time commitment; Few fringe benefits; Limited growth & life span; Unlimited liability (personal assets are at risk).

General Partner

A partner involved in management with unlimited liability.

Horizontal Merger

When two firms in the same industry merge to diversify or expand products.

Franchise

An arrangement where someone buys the rights to use a business name and sell its products.

Acquisition

When one company buys another to merge.

Unlimited Liability

When business owners are personally responsible for all debts and damages.