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3 forms of Business Ownership 1. Sole Proprietorship 2. Partnership 3. Corporation

 --One owner has complete control --Profits and losses flow directly to the owners and are taxed at individual rates --Owner has unlimited personal liability for the business's financial obligations --Easy to set-up; typically requires just a business license and a form to register the company nameSole Proprietorship Sole Proprietorship

 A business owned by one person Sole Proprietorship

 Advantages of Sole Proprietorship's --Simplicity --Single layer of taxation --Privacy --Flexibility and Control --Fewer limitations on personal income --Personal satisfaction

 Disadvantages of Sole Proprietorship's --Financial Liability --Demands on the owner --Limited managerial perspective

--Resource limitations --No employee benefits for the owner --Finite life span

 --A legal condition under which any damages or debts incurred by a business are the owner's personal responsibility Unlimited Liability

 An unincorporated company owned by two or more people Partnership

 3 types of Partnerships 1. General Partnership 2. Limited Partnership 3. Limited Liability Partnership (LLP)

 General Partnership A partnership in which all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations

 General Partnership --Two or more owners; each partner is entitled to equal control unless agreement specifies otherwise --Profits and losses flow directly to the partners and are taxed at individual rates; partners share income and losses equally unless the partnership agreement specifies otherwise --All partners have unlimited liability; meaning their personal assets are at risk to mistakes made by other partners --Easy to set up; partnerships agreement not required but strongly recommended

 Limited Partnership A partnership in which one or more persons act as general partners, run the business, and have the same unlimited liability as sole proprietors

 Limited Partnership --Two or more owners; one or more general partners manage the business; limited partners don't participate in the management --Profits and losses flow directly to the partners and are taxed at individual rates; partners share income and losses equally unless the partnership agreement specifies otherwise

--Limited partners have limited liability (making them liable only for the amount of their investment); general partners have unlimited liability --Easy to set up; partnerships agreement not required but strongly recommended

 _________________ do not participate in the management operations of the business. Limited Partners

 __________ partners have limited liability which means they are liable for ____________ 1) Limited 2) only the amount of their investment

 __________ partners have unlimited liability General

 Limited Liability A legal condition in which the maximum amount each owner is liable for is equal to whatever amount each invested in the business.

 Limited Liability Partnership -- LLP A partnership in which each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole

 LLP --Created to help protect individual partners in certain professions from major mistakes by other partners --There are restrictions on who can form these which vary from state to state

 6 Advantages of Partnerships 1. Simplicity 2. Single layer of taxation 3. More resources 4. Cost sharing 5. Broader skill and experience base 6. Longevity

 3 Disadvantages of Partnerships 1. Unlimited liability 2. Potential for conflict 3. Expansion, succession, and termination issues

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_____________ are the least popular form of business ownership. Partnerships

 A Partnership Agreement should address...... 1. Investment percentages 2. Profit-sharing percentages 3. Management responsibilities and other expectations of each owner 4. Decision-making strategies 5. Succession and exit strategies 6. Criteria for admitting new partners 7. Dispute-resolution procedures

 A Partnership Agreement can _______________ of the partnership structure and _______________ 1. maximize the advantages 2. minimize the disadvantages

 Corporation A legal entity, distinct from any individual persons, that has the power to own property and conduct business.

 Corporation --Unlimited number of shareholders; No limits on stock classes or voting arrangements; Ownership and management of the business are separate --Profits are taxed at corporate rates; profits are taxed again at individual rates when or if they are distributed to investors as dividends --Investor's liability is limited to the amount of his or her investment --More complicated and expensive to establish than a sole proprietorship; requirements vary from state to state

 Shareholders in public corporations ___________ (are/are not) involved in management decisions. ARE NOT

 Shareholders Investors who purchase shares of stock in a corporation

 A corporation is owned by ____________. Shareholders

 Public Corporation

A corporation in which stock is sold to anyone who has the means to buy it.

 Public Corporations are said to be ______________ or _______________ 1. Publicly held 2. Publicly traded

 Private Corporation A corporation in which all the stock is owned by only a few individuals or companies and is not made available for purchase by the public.

 Private Corporations are also known as _______________. Closely held corporations

 4 Advantages of Corporations 1. Ability to raise capital 2. Liquidity 3. Longevity 4. Limited Liability

 6 Disadvantages of Corporations 1. Cost and complexity 2. Reporting requirements 3. Managerial demands 4. Possible loss of control 5. Double taxation 6. Short-term orientation of the stock market

 Liquidity A measure of how easily and quickly an asses such as corporate stock can be converted into cash by selling it

 S-corporation (Subchapter S Corporation) A type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership --Half CORPORATION and half PARTNERSHIP

 Limited Liability Company -- LLC --A structure that offers the advantages of limited liability, along with the pass-through taxation benefits of a partnership --The number of shareholders is not restricted, nor is

members' participation in management --MOST POPULAR

 The __________ structure is recommended for most small companies that are not sole proprietorships LLC -- Limited Liability COMPANY

 Benefit Corporation --A profit-seeking corporation whose charter specifies a social or environmental goal that the company must pursue in addition to profit

 Public Corporation -- Publicly Held Corporation/Publicly Traded Corporation A corporation whose stock is sold to the general public

 Private Corporation -- Closely Held Corporation A corporation whose stock is held by a small number of owners and is not available for sale to the public

 S Corporation A corporation that is allowed to sell stock to a limited number of investors while enjoying the pass-through taxation of a partnership

 LLC -- Limited Liability COMPANY A corporate structure with benefits similar to those of an S corporation, without the limitation on the number of investors

 Benefit Corporation A profit-seeking corporation whose charter also requires it to pursue a state social or environmental goal

 Subsidiary A corporation primarily or wholly owned by another company

 Parent Company A corporation that owns one or more subsidiaries

 Holding Company A special type of parent company that owns the companies for investment reasons and usually exercises little operating control over those subsidiaries

 Alien Corporation

A corporation that operates in the United States but is incorporated in another country

 Foreign Corporation -- (Out-of-state Corporation) A company that is incorporated in one state but that does business in several other states where it is registered

 Domestic Corporation A corporation that does business only in the state where it is chartered (incorporated)

 Many corporations incorporate in the state of _____________ because incorporation laws are more lenient Delaware

 Shareholders who own ________ stock elect a ____________ to represent them. 1. common 2. board of directors

 The ______________ select the corporations top officers, who _________________ 1. board of directors 2. actually run the company

 Board of Directors A group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top officers --voted on every year --decide the direction of the company

 Corporate Governance --In a broad sense... all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise --In a narrow sense.... the responsibilities and performance of the board of directors specifically

 ____________ elect ____________, who hire ____________, who hire ____________

1. Shareholders 2. the board of directors 3. the corporate officers 4. the employees

 Proxy A document that authorizes another person to vote on behalf of a shareholder in a corporation

 Shareholder Activism --Activities undertaken by shareholders to influence executive decision making in areas ranging from strategic planning to social responsibility --When shareholders pressure management on matters ranging from executive pay to corporate social responsibility to overall company performance

 Board Chair (or Chairman) Oversees the other members of the board of directors

 Board of Directors Are supposed to oversee the corporate officers who make up the top management team

 Corporate Officers The top executives who run a corporation --implement major board decisions --make numerous business decisions --ensure compliance with government regulations --perform other essential tasks

 The ______________ is the major influence on a company's performance and financial health executive team

 Chief Executive Officer -- CEO --highest ranking officer of a corporation

 Corporate officers are hired by ______________ the board of directors

 Businesses can combine permanently either through _____________ or ______________

mergers or acquisitions (M&A)

 Merger --An action taken by two companies to combine and perform as a single entity --Two companies join to form a single entity --Can join together either by pooling their resources or by one company buying the assets of the other.

 Consolidation --not strictly a merger --when two companies create a new, third entity that then purchases the two original companies

 Acquisition --An action taken by one company to buy a controlling interest in the voting stock of another company --most of the time, the selling party agrees to be purchased --sometimes, a buyer attempts to acquire a company against the wishes of management

 Hostile Takeover --Acquisition of another company against the wishes of the management of that company --The buyer tries to convince enough shareholders to go against management and vote to sell --The company that is being taken over DOES NOT want to be taken over

 Leveraged Buyout -- LBO --Acquisition of a company's publicly traded stock, using funds that are primarily borrowed, usually with the intent of using some of the acquired assets to pay back the loans used to acquire the company --use the target company's assets as collateral for the loans received to purchase the publicly traded stock --is an aggressive move and can be risky --TAKE ON DEBT

 4 Advantages of Mergers and Acquisitions 1. Increase their buying power as a result of their large size 2. Increase revenue by cross-selling products to each other's customers 3. Increase market share by combining product lines 4. Gain access to new expertise, systems, and teams of employees

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4 Disadvantages of Mergers and Acquisitions 1. Executives have to agree on how the merger will be financed 2. Managers need to decide who will be in charge after they join forces 3. Marketing departments need to figure out how to blend product lines, branding strategies, and advertising and sales efforts 4. Companies must often deal with layoffs

 Vertical Merger --occurs when a company purchases a complementary company at a different stage or level in an industry --different stages or levels of the same industry --EX] a furniture maker buying a lumber supplier --this is about CONTROL --EX] Coca-cola; Pepsi

 Horizontal Merger --involves two similar companies at the same level; companies can merge to expand their product offerings or their geographic market coverage --one company buys another company to expand and get more customers --this is about MARKET SHARE

 Conglomerate Merger --a parent company buys companies in unrelated industries, often to diversify its assets to protect against downturns in specific industries --companies in unrelated industries --about DIVERSIFYING your RISK

 Product-extension Merger --type of horizontal merger --expanding the mix of goods and services that a company has available for sale --EX] lumber supplier buying a leather supplier

 Market-extension Merger --type of horizontal merger --expanding the geographic range of markets that a company can serve --EX] a retailer in Western U.S. buying a retailer in Eastern U.S.

 A hostile takeover can be launched in one of two ways: by ______________ or by ______________ tender offer proxy fight

 Tender Offer --When the buyer (or raider) offers to buy a certain number of shares of stock in the corporation at a specific price. --price offered is usually more than the current stock price, so shareholders are motivated to sell

 Raider what the buying party is sometimes called in a tender offer or proxy fight

 Proxy Fight the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.

 Corporate boards and executives use two schemes to defend themselves against unwanted takeovers: the _____________________ or the _____________________ the poison pill defense the white knight tactic

 Poison Pill Defense The targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover

 White Knight Tactic A third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover

 Strategic Alliance --A long-term partnership between companies to jointly develop, produce, or sell products --Can accomplish many of the same goals as a merger or acquisition but with less risk and work than permanently integrating two companies --Can help a company gain credibility in a new field,

expand its market presence, gain access to technology, diversify offerings, and share best practices without forcing the partners to become permanently entangled

 Joint Venture --A separate legal entity established by two or more companies to pursue shared business objectives --lets companies create an operation that is more tightly integrated but without disrupting the original companies to the extent that a merger or acquisition does Study Everywhere! © 2016 Quizlet Inc. Follow @quizlet on Twitter....