Week-2; Forms of Ownership

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Chapter5

Forms of Business Ownership

Introduction to Business


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Chapter5

Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved 2

1 What are the strengths and weaknesses of the soleproprietorship form of business organization?

2 What are the advantages of operating as a partnership,

and what downside risks should partners consider?

3 How does the corporate structure provide advantages

and disadvantages to a company, and what are the major

types of corporations?

4 Does a company have other business organization

options in addition to sole proprietorships, partnerships,and corporations?

Learning Goals


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5 What makes franchising an appropriate form of

organization for some types of business, and why is it

growing in importance?

6 Why are mergers and acquisitions important to a

companys overall growth?

7 How will current trends affect the business organizations

of the future?

Learning Goals


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Principles of Business Ownership

Financing?

Employees?

Bu siness taxes?

Debt l iabi l i ty?

Operat ing contro l?

Ownership?


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Learning Goal 1

What are the strengths and

weaknesses of the soleproprietorship form of

business organization?

1


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SOLE PROPRIETORSHIPS1

A business that isestablished, owned,

operated, and

often financed by

one person.

Sole

Proprietorship


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SOLE PROPRIETORSHIPS1

Advantages

Easy and inexpensiveto form

Profits go to the owner

Direct control of thebusiness

Freedom fromgovernment regulations

No special taxation

Ease of dissolution

Disadvantages

Unlimited liability

Difficulty in raisingcapital

Limited managerialexpertise

Trouble findingqualified employees

Personal timecommitment

Unstable business life

Losses are ownersresponsibility


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2 Learning Goal 2

What are the advantages

of operating as a partnership,and what downside risks

should partners consider?


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PARTNERSHIPS2

An association oftwo or more individuals

who agree to operate

a business together

for profit.

Partnership


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PARTNERSHIPS2

Advantages

Ease of formation

Availability of capital

Diversity of skills andexpertise

Flexibility

No special taxes

Relative freedom fromgovernment control

Unlimited liability

Potential for conflicts

between partners Sharing of profits

Difficulty exiting ordissolving

Disadvantages


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3 Learning Goal 3

How does the corporate

structure provide advantagesand disadvantages to a company,

and what are the major types

of corporations?


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CORPORATIONS3

A legal entity with anexistence and life separate

from its owners,

who are not

personally liable for

the entitys debts.

Corporation


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The 10 Largest U.S. Corporations3


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The Incorporation Process3

Select companys name

Write articles of incorporation

Pay required fees and taxes

Hold organizational meeting

Adopt bylaws, elect directors,

pass operating resolutions


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The Corporate Structure3

Stockholders

Directors

President VP Treasurer Secretary

Officers

Elect

Hire


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CORPORATIONS3

Advantages

Limited liability

Ease of transferringownership

Unlimited life

Tax deductions

Ability to attractfinancing

Double taxation ofprofits

Cost and complexityof formation

More governmentrestrictions

Disadvantages


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Types of Corporations

C Corporation Conventional or basic corporate formof organization

S CorporationA hybrid entity that is organized like

a corporation, but taxed like a

partnership

Limited Liability

Company (LLC)

A hybrid organization that offers the

same liability protection as a

corporation but may be taxed as

either a partnership or a corporation

3


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4

Does a company have other

business organization optionsin addition to sole

proprietorships, partnerships,

and corporations?

Learning Goal 4


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4 Cooperatives

Legal entities formed by

people with similar

interests, to reduce costs

and gain economic power.Cooperatives

Seller

Cooperatives

Individual producers join together

to compete more effectively with

large producers

Buyer

Cooperatives

A group of cooperative members

who unite for combined

purchasing power


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What makes franchising an

appropriate form of organizationfor some types of business,

and why is it growing in importance?

5 Learning Goal 5


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5

A form of businessorganization based on

a business arrangement

between a franchisor,

which supplies the

product concept

and the franchisee,

who sells the goods or

services of the

franchisor in a certaingeographic

area.

Franchising

Franchising


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5

Advantages

Increased ability forfranchisor to expand

Recognized name,product, and operatingconcept

Management trainingand assistance

Financial assistance

Loss of control

Cost of franchising

Restricted operatingfreedom

Disadvantages

Franchises


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5 Top 10 Fastest-Growing Franchises


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6

Why are mergers andacquisitions important to a

companys overall growth?

Learning Goal 6


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6

The combination of twoor more firms to form

a new company,

which often takes on a

new corporate identity.

Merger

The purchase of a

corporation by anothercorporation or

investor group.

Acquisition

MERGERS AND ACQUISITIONS


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6

HorizontalMerger

Vertical

Merger

Conglomerate

Merger

Leveraged

Buyout

Types of Mergers


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6 Selected Megamergers


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7

How will current trends affect thebusiness organizations of the future?

Learning Goal 7


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7

ChangingDemographics

FranchiseInnovations

Mergers

Trends in Business Ownership


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7

FranchiseDifferentiation

Cross-branding

Multiple-conceptfranchises

Expanded

product offerings

New ideas

Franchise Innovations


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7

A purchase price that is low enough

A target that is smaller than the buyer,

and that the buyer understands

Evidence the deal isnt the brainchild of anegocentric CEO

A buyer who pays in cash and notoverinflated stock

Identifying Merger Opportunities


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Week-2; Forms of Ownership

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