Busn 100 Chapter 05.ppt

1、Busn 100 Chapter 05,Form of Businesses,1,Goals,Forms of Businesses Advantages and Disadvantages of Sole Proprietorship Partnerships: General and Limited Partners Advantages and Disadvantages of Partnerships Corporations Advantages and Disadvantages of Corporations Types of Corporations C Corps S Cor

2、ps Limited Liability Corporations (LLC),2,Goals,Define and give examples of three types of corporate mergers Leveraged Buyouts Taking a Firm Private Franchises Advantages and Disadvantages of Franchises Cooperatives,3,Forms of Businesses,Sole Proprietorship A business that is owned, and usually mana

3、ged, by one person Partnership A legal form of business with two or more owners Corporation A legal entity with authority to act and have liability separate from its owner,4,5-5,Basic Forms of Business Ownership,Source: US Internal Revenue Service,5-6,5-7,Terms,Asset Things like buildings, autos, ca

4、sh Liability Debt = Owe Unlimited Liability With the business form, Sole Proprietorship, if the sole proprietor owes money, the creditor can take the businesss assets and the sole proprietors assets Limited Liability With the business form, Corporation, if the Corporation owes money, the creditor ca

5、n take the businesss assets but not the owners assets Resources: Ability to get Capital (equity or debt),8,5-9,Sole Proprietorship,Ease of start/end Be your own boss Pride of ownership Leave a legacy Retain profit No special taxes, but you must pay payroll taxes,Unlimited liability Limited financial

6、 resources Management difficulty HUGE Time commitment Few fringe benefits Limited growth Limited life span,Advantages,Disadvantages,5-10,Types of Partnerships,General,GP,GP,GP,GP,Limited,GP,Passive Investor,Passive Investor,Passive Investor,Partnerships,General Partnerships A partnership in which al

7、l the owners share in operating the business and in assuming liability for the business debts Limited Partnerships A partnership with one or more general partner and one or more limited partners,General Partner An owner that has unlimited liability and is active in managing the firm Limited Partner

8、An owner that invests money in the business buy does not have any management responsibility or liability for losses beyond the investment,11,19 - 12,Mutual Agency (Advantage and Disadvantage),Agent One empowered to act for or represent another (http:/ ) Someone who is supposed to act in the best int

9、erest of someone else Mutual Agency The ability of each partner to act as an agent of the firm, thereby committing the entire firm to a binding contract Each partner can enter into binding contracts in the name of the firm for the purchase or sale of goods or services within the normal scope of the

10、firms business,5-13,Partnership,More financial resourcesShared management Longer survivalNo special taxes, but you must pay payroll taxes Mutual Agency,Unlimited liabilityDivision of profitsDisagreementsamong partnersDifficult to terminate Mutual Agency,Advantages,Disadvantages,New Forms of Partners

11、hips,Master Limited Partnership (MLP) A partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax,Limited Liability Partnership (LLP) A partnership that limits partner

12、s risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision,5-14,5-15,New Forms of Partnerships,Master Limited Partnership Traded Publicly Taxed As A PartnershipLimited Liability Partnership An individual is responsible

13、for their actions Solves the Mutual Agency problem,5-16,Types of Corporations,Conventional C S CorporationLimited Liability Companies,5-17,Corporations,Private: Not Traded on Any Stock ExchangePublic: Shares are Traded on One or More Stock ExchangesNon-Profit: Performs Public Service, Has Special Ta

14、x Considerations to Encourage Formation,5-18,Corporation,Limited liabilityMore money for investmentSizePerpetual lifeEase of ownershipchangeEase of drawing talented employeesSeparation ofownership/mgmt. Dividends paid in proportion to ownership,Extensive paperworkDouble taxationTwo tax returnsSizeTe

15、rmination difficultConflict with Stockholder & Board Initial cost Separation ofownership/mgmt.,Advantages,Disadvantages,5-19,How Owners Affect Management,5-20,Worlds Largest Corporations 2008,Citigroup General Electric American Intl Group Bank of America HSBC Group ExxonMobil Royal Dutch/Shell BP IN

16、G Group Toyota Motor,UBS Wal-Mart Stores Royal Bank of Scotland JP Morgan Chase Berkshire Hathaway BNP Paribas IBM Total Verizon Communication Chevron Texaco,Source: Forbes, 2005,5-21,Worlds Largest Corporations 2010,5-22,Americas Largest Private Companies,Cargill / agricultural commodities, food $6

17、6,669 Koch Industries / chemicals, energy, tech 60,000 Mars / candy, pet food electronics 19,100 PricewaterhouseCoopers / accounting 18,700 Publix Supermarket / supermarkets 18,686,Revenue 2004(In Millions),Source: Forbes, 2005,5-23,Americas Oldest Companies,20 - 24,Formation of a Corporation,A pers

18、on or persons applies for a charter The appropriate state official issues the charter Charter Written permit, issued by a state government, for a corporation to exist State-approved articles of incorporation,20 - 25,Articles of Incorporation,Application for a charter Include the following informatio

19、n: Name and address of the corporation Nature of the business Amount and description of the capital stock to be issued Name(s) of the promoter(s) or sole incorporator who will hold an initial meeting to elect an acting board of directors Become the governing instrument of the corporation Must be acc

20、ompanied by a charter fee, which is based on the dollar amount of the maximum stock investment as specified in the charter,20 - 26,Initial Meeting,Called by the promoters or sole incorporator to Elect an acting board of directors Formulate bylaws Charter and bylaws provide the basic rules for conduc

21、ting the corporations affairs,20 - 27,After Acceptance of Charter and Bylaws,Directors meet to appoint officers to serve as active managers of the business Corporation issues capital stock to buyers of stock who have paid in full Stockholders elect a permanent board of directors,S Corp,Small (less t

22、han 100 owners) corporation that is taxed like a sole proprietorship/partnership and has Limited Liability Benefits: Taxed Once Limited Liability,28,5-29,S Corporations,No more than 100 shareholders Individual or Estates U.S. citizens or permanent residents,1 class of stock 25% of income can be pass

23、ive Benefits change with new tax rules,Limited Liability Company (LLC),Similar to Corporations except: Taxed once (like Sole Proprietorships and Partnerships) Can share profits in whatever proportion they want (not like S or C corps) Less Required paperwork (no annual meetings, minutes, articles of

24、organization, but does file written operating agreement) No stock (cannot transfer ownership) Must say when company will end,30,5-31,Limited Liability Companies,Limited Liability Tax Choice Flexible Ownership Rules Flexible Profit & Loss Distribution Operating Flexibility,No Stock Limited Life Span

25、Fewer Incentives Paperwork,Advantages,Disadvantages,Nolo Press,This is a great place to find books about how to start and create any of the Business Forms discussed in the book http:/ and give examples of three types of corporate mergers,Merger The result of two companies forming one company Acquisi

26、tion One companys purchase of the property and obligations of another company Vertical Merger The joining of two firms involved in different stages of related businesses Horizontal Merger The joining of two firms in the same industry Conglomerate Merger The joining of firms in completely unrelated i

27、ndustries,33,5-34,Types of Mergers,Conglomerate,Vertical,Horizontal,No Relationship between companies,Types of Mergers,Conglomerate then Horizontal: During the 1960s, Shasta was purchased by the Sara Lee food company (then known as Consolidated Foods). In 1985, it was acquired by the National Bevera

28、ge Corp., which also owns the popular Faygo line. http:/en.wikipedia.org/wiki/Shasta_(soft_drink) Vertical: Cabinet manufacturer purchased wood producing factory Horizontal JPMorgan buys WaMu Wells Fargo buys Wachovia,5-35,5-36,Why Mergers Dont Work!,Companies Overpay to Acquire Another Firm GM & Hu

29、mmer AOL & Time Warner (2002 $100 M write down) Acquiring Company Overestimates Cost Savings and Synergies The cultures of the two companies do not mix well 1998 Daimler-Benz AG & Chrysler Corporation Managers Disagree About Integrating Operations Obsession with Cost Cutting Hurts Business, Costing

30、 Top Employees & Customers,Terms,Leveraged Buyouts (LBO) An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing Taking a Firm Private Individuals buying all public stock for themselves There are far fewer regulations and restrictions if t

31、he company is a “private corporation”,37,5-38,Franchise System,Franchise The right to use a specific businesss name and sell its products or services in a given territory Franchisor The company that develops the product/service and sells the rights to use the product/service Franchisee The person wh

32、o buys the franchise Franchise Agreement The contact between the franchisor and Franchisee,5-39,Franchise Contract,Franchisor, Inc.,Franchisee,Branded Product/Service,Performance Monitoring,$,5-40,Franchisor,Assigns TerritoryMay Provide Financial Aid/AdviceOffers Merchandise/ Supplies at Competitive

33、 Price,Provides Training/SupportBusiness Expansion Using O.P.M.,5-41,Franchisee,Pays Up-Front CostsMakes Monthly Payment to FranchisorRuns Business by Franchisors Rules/ProceduresBuys Materials from Franchisor/ Approved Supplier,5-42,Franchises,Management & marketing assistance Personal ownership Re

34、cognized name Financial advice & assistance Lower failure rate,High start-up costs Shared Profit Management regulation Coattail effects Restrictions on selling Fraudulent franchisors,Advantages,Disadvantages,5-43,Cost of Fast-Food Franchise,Terms,Benefits of a Home-Based Franchise Flexible work hour

35、s Quality lifestyle Doing the work of your choice Opportunity to expand using technology Self-motivation Franchising & E-Commerce Technology- Faster Customer Service Access to International Markets,44,Cooperatives,A business owned and controlled by the people who use it producers, consumers, or work

36、ers with similar needs who pool their resources for mutual gain Examples: Grocery stores PCC http:/ Electricity Childcare Financial services Farms,45,Goals Summarized,Sole Proprietorship Easy to start Taxed one time Unlimited Liability Partnerships Easy to start Taxed one time Unlimited Liability Mo

37、re resources than Sole Proprietorship Corporations Limited Liability Easy to get resources (compared to SP and P) Perpetual life and easy to change owners,46,Goals Summarized,Three types of corporate mergers Vertical Horizontal Conglomerate Leveraged Buyouts Lots of debt to take over ownership of firm Taking a Firm Private From Public Corp to Private Corp Franchises Large Start up cost, But you have a proven product/service Cooperatives A good business form for groups of people with similar interests,47,