chapter 5 the future of business gitman & mcdaniel 5 th edition the future of business gitman...

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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

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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


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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 company’s 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?

Business taxes?

Debt liability?

Operating control?

Ownership?


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Learning Goal 1

What are the strengths andweaknesses of the sole proprietorship form of business organization?

1


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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


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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


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2 Learning Goal 2

What are the advantagesof operating as a partnership,

and what downside risks should partners consider?


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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


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PARTNERSHIPS2


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



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3 Learning Goal 3

How does the corporatestructure provide advantages

and 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 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


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The 10 Largest U.S. Corporations3


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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


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The Corporate Structure3

Stockholders

Directors

President VP Treasurer Secretary

Officers

Elect

Hire


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CORPORATIONS3


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



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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


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4

Does a company have otherbusiness organization options

in 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 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


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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


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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 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


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5


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


Franchises


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5Top 10 Fastest-Growing

Franchises


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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


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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


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6

Horizontal Merger

Horizontal Merger

VerticalMerger

VerticalMerger

ConglomerateMerger

ConglomerateMerger

LeveragedBuyout

LeveragedBuyout

Types of Mergers


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6 Selected Megamergers


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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


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Changing Changing DemographicsDemographics

Changing Changing DemographicsDemographics

Franchise Franchise InnovationsInnovationsFranchise Franchise

InnovationsInnovations

MergersMergersMergersMergers

Trends in Business Ownership


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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


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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

chapter 5 the future of business gitman & mcdaniel 5 th edition the future of business gitman...

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