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Chapter5
Forms of Business Ownership
Introduction to Business
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Chapter5
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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
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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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