4 better prices for their food products. Eventually the idea expanded, and farm cooperatives now buy and sell fertilizer, farm equipment, seed, and other prod- ucts in a multibillion-dollar industry. Cooperatives have an advantage in the marketplace because they don't pay the same kind of taxes corporations pay. Cooperatives are still a major force in agriculture and other industries today. Some top co-ops have familiar names such as Land O' Lakes, Sunkist, Ocean Spray, Blue Diamond, Associated Press, Ace Hardware, True Value Hardware, Riceland Foods, and Welch's, WHICH FORM OF OWNERSHIP IS FOR YOU? ‘You can build your own business in a variety of ways. You can start your own sole proprictorship, partnership, corporation, LLC, or cooperative—or you can buy a franchise and be part of a larger corporation. There are advantages and disadvantages to cach. Before you decide which form is for you, evaluate all the alternatives carefully. The miracle of free enterprise is that the freedom and incentives of capi- talism make risks acceptable to many people who go on to create the great corporations of America. You know many of their names and companies: James Cash Penney (JCPenney), Steve Jobs (Apple Computer), Sam Walton (Walmart), Levi Strauss (Levi Strauss), Henry Ford (Ford Motor Company), Thomas Edison (General Electric), Bill Gates (Microsoft), and so on. They started small, accumulated capital, grew, and became industrial leaders. Could, you do the same? em + What are some of the factors to consider before buying a franchise? + What opportunities are available for starting a global franchise? + What Is a cooperative? FREED) Compare the advantages and disadvantages of sole proprietoships. + What are the advantages and disadvantages of sole proprietorships? The advantages of sole proprietorships include ease of starting and end- ing, ability to be your own boss, pride of ownership, retention of profit, and no special taxes. The disadvantages include unlimited liability, imited financial resources, difficulty in management, overwhelming time com- mitment, few fringe benefits, limited growth, and limited life span. QE a Pets e te teres etveen genre and tite partners, end compere the advantages and disadvantages of partnerships. + What are the three key elements of a gen The three key elements of a general partnership are common ownership, shared profits and losses, and the right to participate in managing the operations of the business.+ What are the main differences between general and limited partners? General partners are owners (partners) who have unlimited liability and are active in managing the company. Limited partners are owners (part- ners) who have limited liability and are not active in the company. + What does unlimited liability mean? Unlimited liability means that sole proprietors and general partners must pay all debts and damages caused by their business. They may have to sell their houses, cars, or other personal possessions to pay business debts. + What does limited liability mean? Limited liability means that corporate owners (stockholders) and limited partners are responsible for losses only up to the amount they invest. Their other personal property is not at risk. + What is a master limited partnership? ‘A master limited partnership is a partnership that acts like a corporation but is taxed like a partnership. + What are the advantages and disadvantages of partnerships? The advantages include more financial resources, shared management and pooled knowledge, and longer survival. The disadvantages include unlimited liability, division of profits, disagreements among partners, and difficulty of termination. ‘Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited lability ‘companies. + What is the definition of a corporation? A corporation is a state-chartered legal entity with authority to act and have liability separate from its owners. + What are the advantages and disadvantages of corporations? The advantages include more money for investment, limited liability, size, perpetual life, ease of ownership change, ease of drawing talented employ- ces, and separation of ownership from management. The disadvantages include initial cost, paperwork, size, difficulty in termination, double taxa- tion, and possible conflict with a board of directors + Why do people incorporate? Two important reasons for incorporating are special tax advantages and limited liability. + What are the advantages of S corporations? S corporations have the advantages of limited liability (like a corporation) and simpler taxes (like a partnership). To qualify for S corporation status, a company must have fewer than 100 stockholders (members of a family count as one shareholder), its stockholders must be individuals or estates and U.S. citizens or permanent residents, and the company cannot derive more than 25 percent of its income from passive sources. + What are the advantages of limited liability companies? Limited liability companies have the advantage of limited liability with- out the hassles of forming a corporation or the limitations imposed by S corporations. LLCs may choose whether to be taxed as partnerships or corporations. 145146 PART? Business Ownership: Starting «Smal FSFE Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private. + What isa merger? A merger is the result of two firms forming one company. The three major types are vertical mergers, horizontal mergers, and conglomerate mergers, + What are leveraged buyouts, and what does it mean to take a company private? Leveraged buyouts are attempts by managers and employees to borrow money and purchase the company. Individuals who, together or alone, buy all the stock for themselves are said to take the company private, EE) 2vi=« te scvantges anc cisadvantages of ranches, and dscuss the ‘opportunities for diversity in franchising and the challenges of global franchising. + What is a franchise? ‘An arrangement to buy the rights to use the business name and sell its products or services in a given territory is called a franchise. + What is a franchisee? A franchisee is a person who buys a franchise. + What are the benefits and drawbacks of being a franchisee? The benefits include getting a nationally recognized name and reputation, a proven management system, promotional assistance, and pride of own- ership. Drawbacks include high franchise fees, managerial regulation, shared profits, and transfer of adverse effects if other franchisees fail. + What is the major challenge to global franchises? It is often difficult to transfer an idea or product that worked well in the United States to another culture. It is essential to adapt to the region. ce Explain the role of cooperatives. What is the role of a cooperative? Cooperatives are organizations owned by members/customers. Some peo- ple form cooperatives to acquire more economic power than they would have as individuals. Small businesses often form cooperatives to gain more purchasing, marketing, or product development strength. acquisition 135 general partner 123 limited partner 123 ‘conglomerate merger “35 general partnership ‘23 limited partnership 123 conventional (C) horizontal merger 135, master limited corporation °27 ieverener peta partnership (MLP) 123 cooperative 143 (LBO) 136 merger 135, corporation 120 limited liability 123 partnership 120 franchise 136 limited lability company $ corporation 132 franchise agreement 135 (LLC) 132 sole proprietorship 120 franchisee 136 limited tabitty unlimited lability 121 franchisor 135 partnership (LLP) 123 vertical merger 135