chapter 5 the future of business gitman & mcdaniel 5 th edition the future of business gitman...
TRANSCRIPT
Ch
apte
r 5
THE FUTURE OF BUSINESSGitman & McDaniel
5th Edition
THE FUTURE OF BUSINESSGitman & McDaniel
5th Edition
Chapter5
Forms of Business OwnershipForms of Business Ownership
Prepared byDeborah Baker
Texas Christian University
Prepared byDeborah Baker
Texas Christian University
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 2Ch
apte
r 5
1 What are the strengths and weaknesses of the sole proprietorship 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
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 3Ch
apte
r 5
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 company’s overall growth?
7 How will current trends affect the business organizations of the future?
Learning Goals
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 4Ch
apte
r 5
Principles of Business Ownership
Financing?
Employees?
Business taxes?
Debt liability?
Operating control?
Ownership?
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 5Ch
apte
r 5
Learning Goal 1
What are the strengths andweaknesses of the sole proprietorship form of business organization?
1
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 6Ch
apte
r 5
SOLE PROPRIETORSHIPS1
A business that isestablished, owned,
operated, and often financed by
one person.
A business that isestablished, owned,
operated, and often financed by
one person.
Sole Proprietorship
Sole Proprietorship
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 7Ch
apte
r 5
SOLE PROPRIETORSHIPS1
AdvantagesAdvantagesAdvantagesAdvantages
Easy and inexpensive to form
Profits go to the owner Direct control of the
business Freedom from
government regulations No special taxation Ease of dissolution
DisadvantagesDisadvantagesDisadvantagesDisadvantages
Unlimited liability Difficulty in raising
capital Limited managerial
expertise Trouble finding
qualified employees Personal time
commitment Unstable business life Losses are owner’s
responsibility
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 8Ch
apte
r 5
2 Learning Goal 2
What are the advantagesof operating as a partnership,
and what downside risks should partners consider?
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 9Ch
apte
r 5
PARTNERSHIPS2
An association of two or more individuals
who agree to operate a business together
for profit.
An association of two or more individuals
who agree to operate a business together
for profit.
PartnershipPartnership
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 10Ch
apte
r 5
PARTNERSHIPS2
AdvantagesAdvantagesAdvantagesAdvantages
Ease of formation Availability of capital Diversity of skills and
expertise Flexibility No special taxes Relative freedom from
government control
Unlimited liability Potential for conflicts
between partners Sharing of profits Difficulty exiting or
dissolving
DisadvantagesDisadvantagesDisadvantagesDisadvantages
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 11Ch
apte
r 5
3 Learning Goal 3
How does the corporatestructure provide advantages
and disadvantages to a company, and what are the major types
of corporations?
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 12Ch
apte
r 5
CORPORATIONS3
A legal entity with anexistence and life separate
from its owners, who are not
personally liable for the entity’s debts.
A legal entity with anexistence and life separate
from its owners, who are not
personally liable for the entity’s debts.
CorporationCorporation
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 13Ch
apte
r 5
The 10 Largest U.S. Corporations3
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 14Ch
apte
r 5
The Incorporation Process3
Select company’s nameSelect company’s name
Write articles of incorporationWrite articles of incorporation
Pay required fees and taxesPay required fees and taxes
Hold organizational meetingHold organizational meeting
Adopt bylaws, elect directors, pass operating resolutions
Adopt bylaws, elect directors, pass operating resolutions
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 15Ch
apte
r 5
The Corporate Structure3
Stockholders
Directors
President VP Treasurer Secretary
Officers
Elect
Hire
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 16Ch
apte
r 5
CORPORATIONS3
AdvantagesAdvantagesAdvantagesAdvantages
Limited liability Ease of transferring
ownership Unlimited life Tax deductions Ability to attract
financing
Double taxation of profits
Cost and complexityof formation
More government restrictions
DisadvantagesDisadvantagesDisadvantagesDisadvantages
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 17Ch
apte
r 5
Types of Corporations
C CorporationC Corporation Conventional or basic corporate form of organizationConventional or basic corporate form of organization
S CorporationS CorporationA hybrid entity that is organized like a corporation, but taxed like a partnership
A hybrid entity that is organized like a corporation, but taxed like a partnership
Limited LiabilityCompany (LLC)Limited LiabilityCompany (LLC)
A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation
A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation
3
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 18Ch
apte
r 5
4
Does a company have otherbusiness organization options
in addition to sole proprietorships, partnerships,
and corporations?
Learning Goal 4
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 19Ch
apte
r 5
4 Cooperatives
Legal entities formed by people with similar
interests, to reduce costsand gain economic power.
Legal entities formed by people with similar
interests, to reduce costsand gain economic power.
CooperativesCooperatives
SellerCooperatives
SellerCooperatives
Individual producers join togetherto compete more effectively withlarge producers
Individual producers join togetherto compete more effectively withlarge producers
Buyer Cooperatives
Buyer Cooperatives
A group of cooperative members who unite for combined purchasing power
A group of cooperative members who unite for combined purchasing power
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 20Ch
apte
r 5
What makes franchising an What makes franchising an appropriate form of organizationappropriate form of organization
for some types of business,for some types of business,and why is it growing in importance?and why is it growing in importance?
What makes franchising an What makes franchising an appropriate form of organizationappropriate form of organization
for some types of business,for some types of business,and why is it growing in importance?and why is it growing in importance?
5 Learning Goal 5
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 21Ch
apte
r 5
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 certain
geographic area.
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 certain
geographic area.
FranchisingFranchising
Franchising
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 22Ch
apte
r 5
5
AdvantagesAdvantagesAdvantagesAdvantages
Increased ability for franchisor to expand
Recognized name, product, and operating concept
Management training and assistance
Financial assistance
Loss of control Cost of franchising Restricted operating
freedom
DisadvantagesDisadvantagesDisadvantagesDisadvantages
Franchises
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 23Ch
apte
r 5
5Top 10 Fastest-Growing
Franchises
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 24Ch
apte
r 5
6
Why are mergers and Why are mergers and acquisitions important to a acquisitions important to a company’s overall growth?company’s overall growth?
Why are mergers and Why are mergers and acquisitions important to a acquisitions important to a company’s overall growth?company’s overall growth?
Learning Goal 6
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 25Ch
apte
r 5
6
The combination of two or more firms to form
a new company, which often takes on a new corporate identity.
The combination of two or more firms to form
a new company, which often takes on a new corporate identity.
MergerMerger
The purchase of a corporation by another
corporation orinvestor group.
The purchase of a corporation by another
corporation orinvestor group.
AcquisitionAcquisition
MERGERS AND ACQUISITIONS
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 26Ch
apte
r 5
6
Horizontal Merger
Horizontal Merger
VerticalMerger
VerticalMerger
ConglomerateMerger
ConglomerateMerger
LeveragedBuyout
LeveragedBuyout
Types of Mergers
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 27Ch
apte
r 5
6 Selected Megamergers
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 28Ch
apte
r 5
7
How will current trends affect theHow will current trends affect thebusiness organizations of the future?business organizations of the future?
How will current trends affect theHow will current trends affect thebusiness organizations of the future?business organizations of the future?
Learning Goal 7
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 29Ch
apte
r 5
7
Changing Changing DemographicsDemographics
Changing Changing DemographicsDemographics
Franchise Franchise InnovationsInnovationsFranchise Franchise
InnovationsInnovations
MergersMergersMergersMergers
Trends in Business Ownership
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 30Ch
apte
r 5
7
FranchiseFranchiseDifferentiationDifferentiation
FranchiseFranchiseDifferentiationDifferentiation
Cross-brandingCross-brandingCross-brandingCross-branding
Multiple-concept Multiple-concept franchisesfranchises
Multiple-concept Multiple-concept franchisesfranchises
Expanded Expanded product offeringsproduct offerings
Expanded Expanded product offeringsproduct offerings
New ideasNew ideasNew ideasNew ideas
Franchise Innovations
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 31Ch
apte
r 5
7
A purchase price that is low enoughA purchase price that is low enough
A target that is smaller than the buyer, and that the buyer understandsA target that is smaller than the buyer, and that the buyer understands
Evidence the deal isn’t the brainchild of anegocentric CEOEvidence the deal isn’t the brainchild of anegocentric CEO
A buyer who pays in cash and not overinflated stock A buyer who pays in cash and not overinflated stock
Identifying Merger Opportunities