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    Lecture Three

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    Lecture Three

    Uploaded by

    rodriguezzanas9
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    13 views21 pages

    Lecture Three

    Uploaded by

    rodriguezzanas9

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 21

    Lecture Three

    How to
    Lec
    Form a
    Business

    McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
    Chapter Five
    LEARNING GOALS

    1. Compare the advantages and disadvantages of sole proprietorships.

    2. Describe the differences between general and limited partners, and


    compare the advantages and disadvantages of partnerships.

    3. Compare the advantages and disadvantages of corporations and


    summarize the differences between C corporations and limited liability
    companies.

    4. Outline the advantages and disadvantages of franchises, and discuss the


    opportunities for diversity in franchising and the challenges of global
    franchising.

    5-2
    Basic Forms
    of Business
    Ownership MAJOR FORMS of OWNERSHIP

    • Sole Proprietorship -- A business owned,


    and usually managed, by one person.
    • Partnership -- Two or more people legally
    agree to become co-owners of a business.
    • Corporation -- A legal entity with authority
    to act and have liability apart from its
    owners.

    5-3
    Basic Forms
    of Business
    Ownership
    FORMS of
    BUSINESS OWNERSHIP

    5-4
    Advantages
    of Sole
    Proprietorshi
    MAJOR BENEFITS of SOLE
    ps LG1 PROPRIETORSHIP

    1) Ease of starting and


    ending the business
    2) Being your own boss
    3) Pride of ownership
    4) Leaving a legacy
    5) Retention of
    company profit
    6) No special taxes

    5-5
    Disadvantage
    s of Sole DISADVANTAGES of SOLE
    Proprietorshi
    ps LG1 PROPRIETORSHIPS
    1) Unlimited Liability -- Any debts or
    damages incurred by the business are
    your debts, even if it means selling your
    home, car or anything else.
    2) Limited financial resources
    3) Management difficulties
    4) Overwhelming time commitment
    5) Few fringe benefits
    6) Limited growth
    7) Limited life span 5-6
    Partnerships
    MAJOR TYPES of PARTNERSHIPS
    LG2

    • General Partnership -- All owners share in


    operating the business and in assuming
    liability for the business’s debts.
    • Limited
    Partnership -- A
    partnership with one
    or more general
    partners and one or
    more limited
    partners.
    5-7
    Partnerships

    TYPES OF PARTNERS
    LG2

    • General Partner -- An owner (partner)


    who has unlimited liability and is active in
    managing the firm.

    • Limited Partner -- An owner who invests


    money in the business, but enjoys limited
    liability. Limited Liability means that
    liability for the debts of the business is
    limited to the amount the limited partner
    puts into the company; personal assets
    are not at risk.
    5-8
    Partnerships
    OTHER FORMS of
    LG2 PARTNERSHIPS

    • Master Limited Partnership -- A


    partnership that looks much like a
    corporation, but is taxed like a
    partnership and thus avoids the corporate
    income tax.
    • Limited Liability Partnership -- Limits
    partners’ risk of losing their personal
    assets to the outcomes of only their own
    acts and omissions and those of people
    under their supervision.
    5-9
    Advantages &
    Disadvantages
    of ADVANTAGES of
    Partnerships
    LG2 PARTNERSHIPS

    • More financial
    resources
    • Shared
    management and
    pooled/complement
    ary skills and
    knowledge
    • Longer survival
    • No special taxes
    5-10
    Advantages &
    Disadvantages
    of DISADVANTAGES of
    Partnerships
    LG2 PARTNERSHIPS

    • Unlimited liability
    • Division of profits
    • Disagreements
    among partners
    • Difficult to terminate

    5-11
    Corporations
    CONVENTIONAL
    LG3 CORPORATIONS

    • Conventional (C)
    Corporation -- A state-
    chartered legal entity
    with authority to act
    and have liability
    separate from its
    owners (its
    stockholders).

    5-12
    Advantages
    of
    Corporations
    ADVANTAGES of
    LG3 CORPORATIONS

    • Limited liability
    • Ability to raise more money for
    investment
    • Size
    • Perpetual life
    • Ease of ownership change
    • Ease of attracting talented employees
    • Separation of ownership from
    management
    • Anyone can incorporte 5-13
    Advantages
    of
    Corporations The BIG BOYS of BUSINESS
    LG3 America’s Largest Corporations

    1. Walmart
    2. Exxon Mobil
    3. Chevron
    4. ConocoPhillips
    5. Fannie Mae Photo Courtesy of: Walmart Stores

    Source: Fortune, www.fortune.com, accessed June 2011.


    5-14
    Disadvantage
    s of DISADVANTAGES of
    Corporations
    LG3 CORPORATIONS
    • Initial cost
    • Extensive
    paperwork
    • Double taxation
    • Two tax returns
    • Size
    • Difficulty of
    termination
    • Possible conflict
    with stockholders
    5-15
    Corporate
    Expansion:
    Mergers andMERGERS and ACQUISITIONS
    Acquisitions
    LG4

    • Merger -- The result of two firms joining to


    form one company.

    • Acquisition --
    One company’s
    purchase of the
    property and
    obligations of
    another
    company.

    5-16
    Corporate
    Expansion:
    Mergers and TYPES of MERGERS
    Acquisitions
    LG4

    • Vertical Merger -- Joins two firms in


    different stages of related businesses.
    • Horizontal Merger -- Joins two firms in
    the same industry and allows them to
    diversify or expand their products.
    • Conglomerate Merger -- Unites firms in
    completely unrelated industries in order to
    diversify business operations and
    investments.

    5-17
    Franchises
    FRANCHISING
    LG5

    • Franchise Agreement -- An arrangement


    whereby someone with a good idea for a
    business (franchisor) sells the rights to use
    the business name and sell a product or
    service (franchise) to others (franchisees)
    in a given territory.

    • More than 825,000 franchised


    businesses operate in the U.S.,
    employing approximately 17.5 million
    people.
    5-18
    Advantages
    ADVANTAGES of FRANCHISING
    of Franchises

    LG5

    • Management and
    marketing
    assistance
    • Personal ownership
    • Nationally
    recognized name
    • Financial advice and
    assistance
    • Lower failure rate

    5-19
    Disadvantage
    s of
    Franchises
    DISADVANTAGES of
    LG5 FRANCHISING

    • Large start-up costs


    • Shared profit
    • Management regulation
    • Coattail effects
    • Restrictions on selling
    • Fraudulent franchisors

    5-20
    Thank you

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