1. Chapter 5 How to Form a Business BUS 201 Course Instructor: Ms. Sadia Haque

2.  Sole Proprietorship: A business that is owned and usually managed by one person. Example: if someone starts a tea stall by himself only.  Partnership: A legal form of business with two or more owners. Example: Mr. Karim and his friend starts a business together where both of them have contributed.

3.  Corporation: A legal entity with authority to act and have liability apart from its owners. Example: Microsoft.

4.  Ease of starting and ending the business  Being your own boss  Pride of ownership  Leaving a legacy  Retention of company profit  No special taxes

5.  Unlimited liability  Limited financial resources  Management difficulties  Overwhelming time commitment  Few fringe benefits  Limited growth  Limited life span

6.  General partnerships  Limited partnerships  Master limited partnerships (MLP)  Limited liability partnerships (LLP)

7.  General Partnership: A partnership in which all owners share in operating the business and in assuming liability for the business debts.  Limited Partnership: A partnership with one of more general partners and one or more limited partners.

8.  General partner: An owner (partner) who has unlimited liability and is active in managing the firm.  Limited partner: An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment.

9.  Limited liability: the responsibility of a business’s owners for the losses only up to the amount they invest; limited partners and shareholders have limited liability.

10.  More financial resources  Shared management and pooled/complementary skills and knowledge  Longer survival  No special taxes

11.  Unlimited liability  Division of profits  Disagreements among partners  Difficulty in termination

12.  Limited liability  Ability to raise more money for investment  Size  Perpetual life  Ease of ownership change  Ease of attracting talented employees  Separation of ownership from management

13.  Initial cost  Extensive paperwork  Double taxation  Two tax returns  Size  Difficulty of termination  Possible conflict with stockholders and board of directors

14.  Merger: The results of two firms forming one company.  Acquisition: One company’s purchase of the property and obligations of another company.

15.  Vertical merger: The joining of two companies involved in different stages of related businesses.  Horizontal merger: The joining of two firms in the same industry.  Conglomerate merger: The joining of firms in completely unrelated industries.

16.  An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.  Franchisor: A company that develops a product concept and sells others the rights to make and sell the products.  Franchisee: A person who buys a franchise.

17.  Management and marketing assistance  Personal ownership  Nationally recognized name  Financial advice and assistance  Lower failure rate

18.  Large start-up costs  Shared profit  Management regulation  Coattail effects  Restrictions on selling  Fraudulent franchisors