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Choosing a Form of Business Ownership - Coggle Diagram
Choosing a Form of Business Ownership
Difference between general and limited partners
Sole Proprietorships
Advantages
Being your own boss
Price of ownership
Retention of company profit
Ease of starting and ending the business
Leaving a legacy
No special taxes
Disadvantages
Limited financial resources
Management difficulties
Unlimited liability
Few fringe benefits
Overwhelming time commitment
Limited span
A business owned in usually managed by one person
Partnerships
Types
General partner
An owner (partner) who has unlimited liability an is active in managing the firm
Limited partner
An owner who invests money in the business but enjoys liability
Means that liability for the debts of the business is limited to the amount the limited partners put into the company; personal assets are not risks
Limited partnership: A partnership with one or more general partners and one or more limited partners
Advantage
Share management and pooled
Skills and knowledge
More financial resources
Longer survival
No special taxes
General partnership: All owners share in operating the business and in assuming liability for the business's debt
Disadvantage
Division of profit
Difficult to determinate
Unlimited liability
Disagreement among partners
Two or more people legally agree to become co-owners of a business
Pick your partners
There is no such thing as a perfect partners but ask these questions when you try to find your best match
Same goals? What skills? What bring to the business? Trust?
Corporations
Advantages
Ability to raise more money for investment
Size
Limited liability
Perpetual life
Ease of ownership change
Ease of attracting talent of employees
Separation of ownership from management
Disadvantages
Double taxation
Two tax returns
Expensive paperwork
Size
Initial cost
Difficulty of termination
Possible conflict with stale holder and board of director
Conventional (C) Corporation (C) - a state chartered legal entity with authority to act and have liability separated from its owners (its stockholders)
S corporations
S corporations have shareholders, directors and employees, plus the benefit of limited liability
Benefits are taxes only as the personal income of the share holders
A unique government creation that looks like a corporations but it is taxed like Sole proprietorship and Partnership
Limited Liability Company (LLC)
Advantage
Flexible distribution of profit an losses
Operating flexible
Flexible ownership rules
Choice of taxation
Limited liability
Disadvantage
Taxes
Fewer incentives
Limited life span (fixe dissolution date)
Paper work
No stock
Similar to the S Corporations but without the eligibility requirements
Mergers and Acquisitions
Mergers: The result of two firms joining to form one company
Types of Mergers
Conglomerate Mergers Unites: firm in completely unrated industries in order to diversity business operations and investment
Horizontal Mergers: join 2 firms in the same industry and allows them to diversity or expand their products
Vertical Mergers: join 2 firms in different stages of related business
Acquisition: one company purchase of the property and obligations of another company
Special Form of Business Ownership
Franchises
An arrangement whereby someone with a good idea for a business (Franchisor) sell the rights to use the business name and sell a goods or services (Franchise) to other (Franchises) in a given territory.
Disadvantage
Shared profit
Management regulation
Large start-up cost
Coattail effects
Restriction on selling
Fraudulent franchisors
Advantage
Personal ownership
Nationally recognized name
Management and Marketing assistance
Financial advise and assistance
Lower failure rate
Cooperatives
Member democratically control the business by electing a board of directors that hire professional management
Business owned and controlled by the people who use it - producers, customers, or workers similar needs who pool their resources for mutual gain
Leveraged Buyouts (LBO)
An attempt by employees, management or o group of investor to buyout the stockholders in a company primarily through borrowing