BUSN 101 Chapter Notes - Chapter 5, 13-20: Limited Liability Partnership, Limited Liability Company, Limited Liability
Susana Epstein Business 101
Chapter 5
How to form a business
Sole Proprietorship
● Sole proprietorship-business owned, and usually managed by one person
● Corporation- a legal entity with authority to act and have liability apart from its
owners
● Shareholders can make a change in company with shareholders meeting with
board of directors. Vote people in that will make good decisions. A vote per
share
● Unlimited liability- the risk of personal losses. All debts and damages are
YOUR loss
● Few Fringe Benefits- if you are boss, you lose benefits you would get if you
worked for someone
● Limited Life Span
Partnerships
● Partnerships- two or more people legally agree to become co-owners of a
business
● General Partnership-all owners share in operating the business and in
assuming liability for the business’s debts
○ General Partner- An owner (partner) who has unlimited liability and is
active in managing the firm
● Limited Partnership- a partnership with one or more general partners and one
or more limited partners
○ Limited Partner- An owner who invests money in the business, but enjoys
the limited liability.
■ Limited Liability means that liability for the debts of the business
is limited to the amount the limited partner puts into the company;
personal assets are not at risk
● Advantages of Partnerships-
○ More financial resources
○ Govt regulation
○ Shared management and pooled/complementary skills and knowledge
○ Longer survival
○ No special taxes
● Disadvantages
○ Unlimited Liability
○ Division of profits
○ Disagreements among partners
○ Difficulty of termination
○ Limited sources of funds
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● Limited Liability Partnership- limits partner’s risk of losing their personal assets
to the outcomes of only their own acts and omissions and those people under
their supervision
Conventional © Corporation
● A state-chartered legal entity with authority to act and have liability separate from
its owners- its stockholders
○ Stockholders not liable for debts or problems of the corporation beyond
the money they invest in it
■ It takes money to make money, go into debt (loans) and grow
● Advantages
○ Limited liability
○ Transfer of ownership
○ Perpetual Life
○ Access to more capital
○ Expansion potential
○ Ease of ownership change (sell stock)
● Disadvantages
○ Double taxation
○ Formation
○ Disclosure of information
○ Employee-owner separation
Anyone can Incorporate!
S Corporation
● A unique govt creation that looks like a corporation, but is taxed like sole
proprietorships and partnerships
● S corporations have shareholders, directors and employees, plus the benefit
limited liability
● Profits are taxed only as the personal income of the shareholder
Qualifications for S Corporations
● Have no more than 100 shareholders
● Have shareholders that are individuals of estates and are citizens or
permanent residents of the us
● Have only one class of stock
● Derive no more than 25% of income from passive sources
If an S corporation loses its S status, it may not operate under it again for at least 5
years.
Limited Liability Company (LLC)-Similar to an S corporation, but without the eligibility
requirements
● Have to submit articles of organization, which are similar to articles of
incorporation, but are not required to keep minutes, file written resolutions or hold
annual meetings
● The death of a member can cause LLC’s to dissolve automatically
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Merger- the result of two firms joining to form one company
● Vertical Merger- the joining of two firms in different stages of related businesses
(Shrink supply chain)
● Horizontal Merger- the joining of two firms in the same business (Less
competition, join forces)
● Conglomerate Merger-the joining of firms in completely unrelated industries
Acquisition- one company’s purchase of the property and obligations of another company
Leveraged Buyout (LBO)- an attempt by employees, management or a group of investors to
buy out the stockholders in a company
Franchise
● Franchise agreement- an agreement whereby someone with good idea for a
business (franchisor) sells the rights to use the business name and sell a product
or service (franchise) to others (franchisees) in a given territory
○ More than 770,000 franchised businesses operate in the US employing
approx. 8.5M people
● Advantages
○ Management and marketing assistance
○ Personal ownership
○ Nationally recognized name (clout)
○ Financial advice and assistance
○ Lower failure rate
● Disadvantages
○ Large start-up costs
○ Shared profit
○ Management regulation
○ Coattail effects (Ex. thumb in chili)
○ Restrictions on selling
○ Fraudulent franchisors
Cooperatives
● Cooperative (Co-op)- owned and controlled by the people who use it-producers,
consumers or workers with similar needs who pool their resources for mutual
gain
● Farm Cooperatives-buy and sell everything needed to farm, do not have to pay
the same taxes that corporations pay
Chapter 13
Marketing:Helping Buyers Buy
Marketing- create, communicate, deliver, and exchange
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find more resources at oneclass.com
Document Summary
Sole proprietorship-business owned, and usually managed by one person. Corporation- a legal entity with authority to act and have liability apart from its owners. Shareholders can make a change in company with shareholders meeting with board of directors. Vote people in that will make good decisions. Unlimited liability- the risk of personal losses. Few fringe benefits- if you are boss, you lose benefits you would get if you worked for someone. Partnerships- two or more people legally agree to become co-owners of a business. General partnership-all owners share in operating the business and in assuming liability for the business"s debts. General partner- an owner (partner) who has unlimited liability and is active in managing the firm. Limited partnership- a partnership with one or more general partners and one or more limited partners. Limited partner- an owner who invests money in the business, but enjoys the limited liability.
