forms of buiness ownership

Basic Forms of Business Ownership

• Sole Proprietorship

• Partnership

• Corporation

Source: US Internal Revenue Service

Basic Forms of Business Ownership

Source: US Internal Revenue Service

Type of Ownership Number Sales

Sole Proprietorship 72% 6%

Partnership 8% 13%

Corporation 20% 81%

Sole Proprietorship

• Ease of start/end

• Be your own boss

• Pride of ownership

• Leave a legacy

• Retain profit

• No special taxes

• Unlimited liability

• Limited financial resources

• Management difficulty

• Time commitment

• Few fringe benefits

• Limited growth

• Limited life span

AdvantagesAdvantages DisadvantagesDisadvantages

Types of Partnerships

GeneraGenerall

GPGP

GPGP

GPGP

GPGP

LimiteLimitedd

GPGP

PassivePassiveInvestorInvestor

PassivePassiveInvestoInvesto

rr

PassivePassiveInvestorInvestor

PartnershipPartnership

• More financial More financial resourcesresources

• Shared Shared managementmanagement

• Longer survivalLonger survival

• No Special No Special TaxesTaxes

• Unlimited Unlimited liabilityliability

• Division of Division of profitsprofits

• DisagreementsDisagreements among among partnerspartners

• Difficult to Difficult to terminateterminate


Corporations

• Private: Not Traded on Any Stock Exchange

• Public: Shares are Traded on One or More Stock Exchanges

• Non-Profit: Performs Public Service, Has Special Tax Considerations to Encourage Formation

CorporationCorporation

• Limited liabilityLimited liability• More money for More money for investmentinvestment• SizeSize• Perpetual lifePerpetual life• Ease of ownershipEase of ownership changechange• Ease of drawing Ease of drawing talented talented employeesemployees• Separation ofSeparation of ownership/mgmt.ownership/mgmt.

• Extensive Extensive paperworkpaperwork• Double taxationDouble taxation• Two tax returnsTwo tax returns• SizeSize• Termination Termination difficultdifficult• Conflict with Conflict with Stockholder & Stockholder & Board Board • Initial costInitial cost


World’s Largest Corporations

1. Citigroup

2. General Electric

3. American Intl Group

4. Bank of America

5. HSBC Group

6. ExxonMobil

7. Royal Dutch/Shell

8. BP

9. ING Group

10. Toyota Motor

11.UBS

12.Wal-Mart Stores

13.Royal Bank of Scotland

14.JP Morgan Chase

15.Berkshire Hathaway

16.BNP Paribas

17. IBM

18.Total

18.Verizon Communication

20.Chevron Texaco

Source: Forbes, 2005

America’s Largest Private Companies

1. Cargill / agricultural commodities, food $66,669

2. Koch Industries / chemicals, energy, tech 60,000

3. Mars / candy, pet food electronics 19,100

4. PricewaterhouseCoopers / accounting 18,700

5. Publix Supermarket / supermarkets 18,686

Revenue 2004Revenue 2004 (In Millions)(In Millions)

Source: Forbes, 2005

America’s Oldest Companies

Company Year Started Type of Company

J. E. Rhoads & Sons 1702 Conveyer Belts

Covenant Life Ins. 1717 Insurance

Philadelphia 1752 Insurance Contributorship

Dexter 1767 Adhesives & Coatings

D. Landreth Seed 1784 Seeds

Bank of New York 1784 Banking

GM’s Ownership In:

Source: USA TODAY

How Owners AffectHow Owners Affect ManagementManagement

5-13

Types of Mergers

Conglomerate

Vertical

Horizontal

No Relationship

between companies

5-14

Franchise System

• Franchise Agreement

• Franchisor

• Franchisee

5-15

Franchise Contract

Franchisor, Inc.Franchisor, Inc.

FranchiseeFranchisee

Branded Branded Product/ServicProduct/Servic

eePerformancPerformanc

ee

MonitoringMonitoring$$$$$$$$$$

5-16

Franchisor

• Assigns Territory

• May Provide Financial Aid/Advice

• Offers Merchandise/ Supplies at Competitive Price

• Provides Training/Support

• Business Expansion Using O.P.M.

5-17

Franchisee

• Pays Up-Front Costs

• Makes Monthly Payment to Franchisor

• Runs Business by Franchisor’s Rules/Procedures

• Buys Materials from Franchisor/ Approved Supplier

5-18

Franchises

• Management & Management &

marketing assistancemarketing assistance

• Personal ownershipPersonal ownership

• Recognized nameRecognized name

• Financial advice & Financial advice &

assistanceassistance

• Lower failure rateLower failure rate

• High start-up costsHigh start-up costs

• Shared ProfitShared Profit

• Management regulationManagement regulation

• Coattail effectsCoattail effects

• Restrictions on sellingRestrictions on selling

• Fraudulent franchisorsFraudulent franchisors


5-19

Cost of Fast-Food Franchise

CompanyCompany Initial FeeInitial Fee RoyaltyRoyalty

Burger KingBurger King $50,000$50,000 8.5%8.5%

McDonald’sMcDonald’s $45,000$45,000 8%8%

Wendy’sWendy’s $25,000$25,000 8%8%

Domino’sDomino’s NoneNone 8.5%8.5%

SubwaySubway $10,000$10,000 11.5%11.5%

Krispy KremeKrispy Kreme $40,000$40,000 5.5%5.5%