Chapter35 - ISSUES IN SELECTING A BUSINESS FORM An...

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ISSUES IN SELECTING A BUSINESS FORM An entrepreneur or group of entrepreneurs setting out to start a business should consider the following four factors when deciding what form of business to organize: (1) ease of creation ; (2) liability of the owner(s) for obligations of the entity; (3) tax considerations; and (4) the need for raising and ability to raise capital . Traditionally, entrepreneurs have used three major forms to structure their business enterprises—the sole proprietorship, the partnership, and the corporation. We will examine the sole proprietorship as well as franchises. Although the franchise is not really a business organizational form, it is widely used today by entrepreneurs seeking to make profits.
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SOLE PROPRIETORSHIP A business owned by a single person or family, for which the owner reports business income and expenses on his or her personal income tax return and is legally responsible for all debts and obligations incurred by the business. Advantages: The proprietor receives all of the profits ; Easier and less costly to form; Provides owner with greatest degree of control over business decisions; and Proprietor allowed to establish tax-exempt retirement account . Disadvantages: Proprietor has unlimited liability for any losses or liabilities incurred by the entity; The entity will not survive the proprietor’s death, disability, or retirement; and Proprietor may only raise capital for the business out of his personal funds and from loans others
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are willing to make based on his personal liability. FRANCHISE A franchise is defined as any arrangement in which the owner of a trademark, a trade name, or a copyright licenses others to use the trademark, trade name, or copyright in the selling of goods or services. A franchisee (a purchaser of a franchise) is generally legally independent of the franchisor (the seller of the franchise). At the same time, the franchise is economically dependent on the franchisor's integrated business system. In other words, a franchisee can operate as an independent businessperson but still obtain the advantages of a regional or national organization. Well-known franchises include McDonald's, KFC, and Burger King. Types of Franchises Generally, franchises fall into one of the following three classifications: distributorships, chain-style business operations, and manufacturing or processing-plant arrangements.
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(this is all for chapter 35 for test 3) Distributorship. A distributorship arises when a manufacturing concern (franchisor) licenses a dealer (franchisee) to sell its product. Often, a distributorship covers an exclusive territory. An example is an automobile dealership. Chain-Style Business Operation.
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Chapter35 - ISSUES IN SELECTING A BUSINESS FORM An...

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